By Andrey Ostroukh
MOSCOW (Reuters) -Russia's central bank raised its key interest rate sharply to 9.5% on Friday, increasing the cost of borrowing by 100 basis points for the second time in a row, and indicated a further rate increase was likely.
Russia is grappling with stubbornly high inflation which could yet get an extra boost from the weak rouble, which has been battered by the Ukraine crisis. The subsequent erosion of living standards is a key concerns for householders.
The central bank raised its main interest rate seven times in 2021 from a record low of 4.25% but failed to tame inflation, which it targets at 4%.
Governor Elvira Nabiullina struck a hawkish tone when presenting the board decision on Friday, saying policymakers had considered an ever bigger rate rise of 150 basis points.
"We cannot say for today that the cycle of key rate rises has completed. We hold open the prospect of a further key rate increase at the upcoming meetings," Nabiullina said.
The central bank also raised its assessment of the average key rate level in 2022 to 9.0-11% from 7.3-8.3%, indicating there was room for substantial further tightening.
Friday's decision to raise the key rate to its highest level since March 2017 came in line with a Reuters poll of analysts who had predicted the hefty increase as inflation hovers near a six-year high.
With annual inflation at 8.8% as of Feb. 4, the Bank of Russia revised its year-end inflation forecast to 5.0-6.0%, giving up on earlier hopes that it would slow to 4.0-4.5%. It now expects inflation to reach the target in mid-2023.
Short-term inflation risks have intensified due to global market volatility caused by "various geopolitical events", which may affect the rouble and inflation expectations, the bank said.
Higher rates can help curb inflation by pushing up lending costs and increasing the appeal of bank deposits.
The rate hike did not immediately boost the rouble, which was down 1% on the day at 75.78 to the dollar.
Renaissance Capital analysts said the central bank could now raise the rate to 10% at its next board meeting on March 18.
"We pencil in a cautious 50 bps hike in March," Sova Capital said.
Locko Invest analysts said a more aggressive 100-basis-point hike also looked possible next month.