Russia’s central bank left its key interest rate unchanged on Friday as it expects inflation to climb in future due to the planned increase in the value added tax.
The Board of Directors decided to keep the key rate at 7.25 percent, the Bank of Russia said in a statement released by its Press Service.
The bank had lowered its rate by 25 basis points each in March and February.
Monetary policy is highly likely to shift to a neutral stance in 2019, the central bank said.
“The balance of risks is shifted towards proinflationary risks,” the Bank of Russia said.
“Uncertainty persists over how strongly the tax measures may affect inflation expectations and how the external conditions will develop.”
The central bank expects consumer prices to grow by 3.5-4 percent year-on-year at the end of 2018. Inflation is projected to temporarily overshoot 4 percent in 2019 due to the planned increase of the value added tax, the bank said.
“The annual consumer price growth rate will return to 4 percent in early 2020,” the Bank of Russia said.
The Russian economy was projected to log 1.5-2 percent growth this year.
The next policy session is scheduled for September 14 and the Press Service is set to publish the press release at 6.30 am ET.