On 15 August 2023, the Central Bank of Russia (CBR) declared a significant increase in the key interest rate, raising it by 350 basis points from 8.5% to 12.00% annually. This decision was made to address the growing concerns related to price stability.

Inflationary pressures had been mounting, with the annual inflation rate reaching 4.4% as of August 7th, and ongoing price growth rates showing an average of 7.6% over the past three months when seasonally adjusted. Core inflation had also risen to 7.1%. The strong domestic demand, exceeding the capacity for increased production, was contributing to underlying inflationary pressures. This also affected the exchange rate of the ruble due to increased demand for imports, leading to the pass-through of ruble depreciation to prices and an increase in inflation expectations. Given the current line of price growth, there was a substantial risk of inflation exceeding the target in 2024. The Bank of Russia’s decision aimed to shape monetary conditions and overall domestic demand dynamics to bring inflation back to 4% in 2024 and maintain stability close to that level in the future.

The key rate also plays a role in determining interest penalties, which are adjusted in accordance with changes in the key rate. For corporate taxpayers, when there is a delay in payment that does not exceed 30 calendar days, the interest penalty is calculated as 1/300 of the key rate per day of delay. If the delay extends beyond 30 days, starting from the 31st day of delay, the interest penalty becomes 1/150 of the key rate. However, it’s important to note that Russia has enacted a provision from 9 March 2022, until 31 December 2023, whereby the late payment penalty rate remains fixed at 1/300 of the Central Bank key rate, regardless of the duration of the delay.