With a surprise gesture, Russia raises interest rates for this reason

The Russian central bank raised the main interest rate to 4.5% in a surprise move on Friday, which comes as authorities seek to contain high food prices, as new Western sanctions loom on the horizon .

In recent months, Russia has seen an increase in the inflation rate and a decline in the ruble exchange rate, in light of pressure on authorities due to rising food prices during the pandemic.

“The rapid recovery in demand and the high inflation rate are pushing for a return to neutral monetary policy,” the central bank said in a statement, planning to continue raising the interest rate.

The 0.25 percentage point hike in interest rates, the first such step since the end of 2018, surprised experts.

Economist Tatyana Evdokimova said the rate hike came in response to higher inflation that exceeded expectations.

For his part, Timothy Ash, an expert at the BlueBay Asset Management Center, said he expected to raise the interest rate due to increased geopolitical risks and the threat of further Western sanctions.

Food prices in Russia started to rise from March 2020, driven by falling oil prices and the devaluation of the ruble after months of low inflation.