Central Bank Increases Rates

The Central Bank raised its key interest rates by a quarter of a percentage point for the fourth time this year to subdue inflation.

The refinancing rate, which is seen as a ceiling for borrowing money and as a benchmark for calculating tax payments, will be lifted to a 1 1/2-year high of 11 percent beginning Monday. The minimum rate for taking out one-day loans from the Central Bank in repurchase auctions was increased to 7 percent, the Central Bank said Friday in a statement on its web site.

The Central Bank raised borrowing costs in February, April and June to control price growth after inflation rose to a 5 1/2-year high of 15.1 percent in June, fueled by oil and gas prices and capital inflows during a decade of economic growth. The government's 10.5 percent target will be "very difficult" to meet, Finance Minister Alexei Kudrin said last month, and the Economic Development Ministry plans to raise its forecast, Interfax reported Thursday.

"It's another window-dressing measure to show they're reacting to the strong inflation numbers," said Tatyana Orlova, an economist at ING. "It's just to give a signal to the market that they are doing something."

Monetary policy is not effective in Russia because the country has not developed a full-fledged consumer-credit market and mortgages and credit cards are little used outside of the big cities, Orlova said. "Raising rates doesn't have as much impact here as it does in the U.S. or the U.K.," she added.