Russia's Central Bank Shocks Markets with Unexpected 100 bps Rate Hike

Russia's Central Bank has raised interest rates for the first time in 16 months, increasing the key rate from 7.5% to 8.5%. The move comes as concerns over inflation grow due to Russia's spending on the invasion of Ukraine, labor market shortages, and a sharp fall in the value of the ruble. The bank cited persistent inflationary pressure in the economy and raised its forecast for inflation this year to 5-6.5%. The Russian economy has performed better than expected since the invasion, but increased government spending, Western sanctions, and a decline in energy sales have led to a $28 billion deficit. The bank warned that further rate rises were possible if inflation did not subside.