Bank of Russia holds key rate at 14% as inflation re-accelerates

The Bank of Russia held its key rate at 14% on Friday after five consecutive cuts this year, a decision that has no live U.S. ticker to move. The iShares fund built for Russian large- and mid-cap stocks, ERUS, remains in liquidation through December 31, with trading halted since March 2022 and net assets of $462,190 as of Wednesday, September 9. VanEck's Russia equity fund, RSX, was delisted in January 2023 and is still winding down, with $32.9 million remaining and no secondary market.

Ten of 13 analysts in a Reuters poll had looked for the hold; three had looked for a 25-basis-point cut to 13.75%. Annual inflation stood at 6.3% as of September 7, compared with 6.0% in July and still well above the bank's 4% target. Underlying price growth, the bank said, has accelerated to 5% to 6% annualized.

Seasonally adjusted price growth in July ran at an annualized 11.6%, against 5.3% in the second quarter. That more-than-doubling in the current pace is the evidence behind the bank's finding that price pressures have increased significantly, and it is what makes the hold the obvious decision rather than a surprise.

The bank tied the rise in underlying inflation to a temporary drop in production capacity in some sectors. It did not name a cause. Reuters, in July, linked Russia's fuel-price surge and refinery outages to Ukrainian strikes on refining capacity. As those capacity effects fade and aggregate demand grows only moderately, the bank said, underlying inflation will resume its decline.

The baseline forecast is unchanged: inflation of 6.0% to 7.0% in 2026, back at 4.0% in 2027. Third-quarter growth was described only as moderate. Pro-inflationary risks, the bank added, have increased and now prevail. Governor Elvira Nabiullina is due to speak at 8 a.m. Eastern. The next rate meeting is October 23.