MOSCOW, August 15. /TASS/. Domestic demand growth feeds into persistent inflationary pressures and influences the dynamics of the ruble exchange rate via increased demand for imported goods, the Bank of Russia said following a meeting of the regulator's board of directors on the key rate.

"Steady growth in domestic demand surpassing the capacity to expand output amplifies the underlying inflationary pressure and has impact on the ruble’s exchange rate dynamics through elevated demand for imports. Consequently, the pass-through of the ruble’s depreciation to prices is gaining momentum and inflation expectations are on the rise," the regulator said.

The Bank of Russia decided to raise the key rate to 12% from 8.5% per annum at an extraordinary meeting of the Board of Directors. "The Bank of Russia Board of Directors decided to increase the key rate by 350 basis points to 12.00% per annum from 15 August 2023. The decision is aimed at limiting price stability risks," the statement said. "Moving forward, in its key rate decision-making the Bank of Russia will take into account actual and expected inflation dynamics relative to the target and economic transformation processes, as well as the risks posed by domestic and external conditions and the reaction of financial markets. According to the Bank of Russia’s forecast, given the monetary policy stance, annual inflation will return to 4% in 2024," according to the regulator.

The Bank of Russia noted, "Hereinafter, with current price growth rates staying at the attained levels the risk of inflation’s deviation upwards from the target in 2024 is substantial. The Bank of Russia’s decision is aimed at shaping monetary conditions and overall domestic demand dynamics necessary to bring inflation back to 4% in 2024 and stabilize it close to 4% further on."

For the first time since March 2022, the dollar and euro exchange rates exceeded 101 and 111 rubles, respectively, during daytime trade on August 14. In light of the volatility of the ruble exchange rate, the Bank of Russia called a meeting of the regulator's board of directors on Tuesday, August 15. Following the meeting, the dollar fell below 99 rubles, while the euro decreased below 108 rubles.

The next meeting of the Bank of Russia's Board of Directors on the key rate level, is scheduled for September 15, 2023.