The Bank of Russia at the meeting on Friday raised its key rate by 0.5 percentage points - up to 5.5%. The Board of Directors of the Central Bank explained that the Russian and world economies are recovering faster than expected, and inflation is above the regulator's forecast.

This development of events may lead to "a more significant and prolonged deviation of inflation upward from the target, which creates the need for a further increase in the key rate at the next meetings."

In 2020, the Central Bank reduced the rate several times, then it reached a historic low of 4.25%. However, in February, the head of the regulator Elvira Nabiullina announced the end of the key rate easing cycle. This tightening of monetary policy is the third in a row: before that, the Bank of Russia raised the rate by 0.25 percentage points. in March and by 0.5 p.p. in April. Analysts and market participants expected a rate hike: as the Bloomberg consensus forecast showed, most economists predicted a 0.5 percentage point increase in the rate.

USDRUB receded from the lows near 71.55, however downside pressure remains high due to the expectations of dovish Fed move on the meeting on June 16 that will boost appeal of carry trade due to widening real yield differential.