Inflation leads to Russian interest hike

Russia's main financial regulator unexpectedly increased its key rate half a percent from 7.5 to 8 percent on Friday, saying that even in the present situation of slowing economic growth, quelling inflation is its main priority. “Inflation risks have risen, connected, among other things, with the increased political tension and with its possible impact on the dynamics of the national currency rate, as well as with the changes in tax and tariff policies that are being discussed,” the Central Bank said in a statement on its website. In June, core inflation grew to 7.5 percent, well above the bank's forecast of up to 6.5 percent for the year.

Despite traders and investors being wrong-footed, the market reaction was muted. The Russian rouble edged marginally stronger against the dollar, before slipping to trade slightly weaker at 35.12. The Central Bank has already increased its key rate from 5.5 to 7 percent and then to 7.5 percent this year in an attempt to counter the impact that the depreciating rouble has had on the price of imports.