MOSCOW, July 25 (RIA Novosti) - Russia’s Central Bank said Friday that inflation risks increased in the country because of geopolitical tensions and the effects this had on the ruble’s exchange rate.
“The slack in the growth in consumer prices for July 2014 is occurring in smaller increments than were forecasted. Inflation risks rose under the effects of geopolitical tension and its possible influence on the dynamics of the national currency exchange rate, as well as the expected changes in tax and tariffs policies," the bank said in a statement.
An increase in these risks, according to the Central Bank, will lead to holding inflation expectations at an elevated level, creating the threat of inflation growing at the same pace in the next few years.
Inflation in Russia for the July 15-21 period stood at 0.1 percent, equal to the last week levels. Earlier this month, however, there was a spike in consumer prices, largely explained by the indexation of tariffs from July 1. The annualized inflation rate for July 21 was 7.5 percent.
Following a meeting of the board of directors, Russia’s Central Bank unexpectedly raised its key interest rate to 8 percent from the previous level of 7.5 percent, citing the aforementioned increased inflation risks.
The regulator's move falls out of line with the wait-and-see stance previously expected from the Central Bank, whereas now it hopes to shape the conditions for reducing the annual inflation rate to 6 to 6.5 percent by the end of 2014 and down to the target level of 4 percent in the medium term.
