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Key Rate in Russia Increased to 7.5%

 (Image source:globalpressclub.com)

In an effort to deal with higher inflation risk, the Central Bank of Russia has raised its key rate from 7% to 7.5%. As a result of tensions with the West regarding the conflict in Ukraine, the ruble along with stock market have tumbled a sizable amount. The central bank no longer believes that inflation with remain at the 5% target level set for 2014. Expectation is that inflation will rise after the 5% target level. In addition, the rating agency Standard & Poor’s downgraded Russia from BBB to BBB-, which is not too far from junk status. According to Standard & Poor’s, the conflict with Ukraine will cause significant flight of foreign and domestic capital from the Russian economy and in the process weight down growth.