Russian central bank lifts rate to counter sanctions bite

The Russian central bank moved on Friday to shield the country’s economy from tightening Western sanctions over Ukraine, raising its main interest rate in a bid to forestall a resurgence of capital flight. The Bank of Russia surprises with a decision to raise its main rate by half point to 8.0 per cent. It said that ‘inflation risks have increased due to a combination of factors, including, inter alia, the aggravation of geopolitical tension and its potential impact on the ruble exchange rate dynamics.’ The increase was the 3rd since March as the central bank began to tighten monetary policy when the Russian economy was buffeted by the uncertainty generated by the Ukraine crisis and Western sanctions. ‘If high inflation risks persist, the Bank of Russia will continue raising the key rate,’ it added. Neil Shearing, chief emerging markets economist at London-based Capital Economics, said that although the central bank justified its move by inflation risks ‘it’s pretty clear that this is a pre-emptive move to limit capital outflows ahead of possible new sanctions by the US and Europe,’ according to AFP.