Russia central bank keeps rates at 20% but warns of considerable uncertainty

The Central Bank of Russia on Friday held its monetary policy steady and maintained its key interest rate at 20%, but warned of considerable uncertainty as the economy undergoes a “large-scale structural transformation.”

In late February, shortly after Russian forces invaded Ukraine, the CBR more than doubled the country’s key interest rate from 9.5% to 20% in an effort to prop up its plunging currency and mitigate the impact of tough international sanctions.

In its statement Friday, the CBR said the sharp increase in its key rate had “helped sustain financial stability.”

“The Russian economy is entering the phase of a large-scale structural transformation, which will be accompanied by a temporary but inevitable period of increased inflation, mainly related to adjustments of relative prices across a wide range of goods and services,” it said.

“The Bank of Russia’s monetary policy is set to enable a gradual adaptation of the economy to new conditions and a return of annual inflation to 4% in 2024.”

The ruble sank to record lows against the dollar on the back of a barrage of new sanctions and penalties imposed on Moscow by the U.S. and European allies, before moderating in recent weeks. The currency sat at just over 103 to the dollar following the decision on Friday.

Earlier this week, Russia managed to stave off a historic debt default by completing some of its sovereign bond payments in dollars, Reuters reported. The Russian finance ministry said on Friday that it had met its obligations to pay coupons on dollar-denominated Eurobonds in full.

The CBR’s large quantities of foreign currency reserves were targeted by western sanctions that aimed to render them almost inaccessible, preventing policymakers from mitigating the depreciation in domestic assets.