Russia’s central bank has raised its key interest rate by 100 basis points to a five-year high of 9.5 per cent and left scope for further increases in the near future as the country’s inflation remains well above target levels.

“Inflation is far above the Bank of Russia October forecast,” the bank said on Friday, noting a tight labour market and extensive domestic lending as well as external factors.

The bank said expanding demand was outstripping rising production. “Rapid economic activity growth amid the limited availability of labour resources is increasing inflationary pressures,” it said. “The situation in global markets also remains pro-inflationary.”

Russia’s central bank has been one of the world’s most aggressive in raising rates to try to curb inflation, which is stoking mounting concern for monetary policy worldwide.

The rate increase was the eighth since last March. The bank allowed for a potential further rate hike at its next meetings, scheduled for March 18. Its policy aim remains to return inflation to the 4 per cent mark next year.

This year, the bank forecasts annual inflation of 5-6 per cent, it said. In January inflation hit 8.7 per cent, and rose further in early February, it said.

At the moment, “inflationary expectations are not coming down, remaining at multiyear highs,” the bank said. “In these conditions, the balance of risks for inflation has shifted even further to pro-inflationary.”

With unemployment at historic lows, and recruitment at historic highs, the sustainability of further economic growth would be determined by labour efficiency, it said.

Russia’s GDP is expected to grow between 2 and 3 per cent this year, and a further 1.5 to 2.5 per cent next year.

The rate hike comes at a time of market caution over the rouble and the outlook for the stand-off between Russia and the west over Ukraine. The rouble traded at about 75 to the dollar on Friday, having strengthened from close to 80/$ since late January, when Ukraine tensions hit the market.

Analysts at BSC Global Markets said the rate increase was priced in and should not have an impact on the rouble.

The central bank “seems to be inclined to keep the rate relatively high for longer, as some advanced economies have already entered the rate hike cycle, which implies a weakening of emerging market currencies, including the rouble”, the analysts said.