MOSCOW, June 15 (Reuters) - Russia’s central bank will continue raising interest rates in response to rising inflation and does not expect this to hinder economic growth, Governor Elvira Nabiullina said on Tuesday, days after the bank hiked its key rate to 5.5%.
After slashing the rate to a record low of 4.25% last year during the COVID-19 pandemic, the central bank has now raised it three times in 2021 to slow inflation, which shot above its 4% target in November and accelerated to 6.15% as of June 7.
“We have kept the rate low for quite a long time to make sure we don’t clip the wings of a recovering economy, but now we have no doubt that our decisions do not hinder growth,” Nabiullina said in the State Duma, Russia’s lower house of parliament.
Nabiullina said the central bank’s primary tool, monetary policy, cools and heats the economy in much the same way that clothes regulate body temperature.
“Inflation reduces the population’s real incomes and also depreciates savings. And monetary policy can be roughly compared to seasonal clothes - in the cold we put on coats, summer dresses will hang in the wardrobe until the next summer season,” she said.
“It is exactly the same with monetary policy - it responds to the situation in the economy, to what is happening, and helps to achieve stability. Like the right clothes, it keeps us from freezing and overheating.”
“So now is the time to raise rates in response to changed circumstances and rising inflation.”
Nabiullina said last week that the central bank expects the economy to return to its pre-crisis level this quarter, and also said that a rate hike was highly probable at the bank’s next rate-setting meeting on July 23.
Earlier this month, the finance ministry said Russia would ditch all U.S. dollar assets in its National Wealth Fund, but Nabiullina said on Tuesday that the central bank had no plans to halt its purchases of U.S. dollars as part of its budget rule. (Reporting by Elena Fabrichnaya; Writing by Alexander Marrow; Editing by Pravin Char)