MOSCOW, Feb 10 (Reuters) - Russia's central bank held its key interest rate at 7.5% on Friday, but suggested that it may have to hike rates this year as a widening budget deficit, labour shortages and a weaker rouble pose inflationary risks.
Last year, the bank gradually reversed an emergency rate hike to 20% made in late February following Russia's decision to send tens of thousands of troops into Ukraine and the imposition of wide-ranging Western sanctions in response. It has now held rates steady at 7.5% since the last cut in September.
The Bank of Russia kept its year-end inflation forecast at 5.0-7.0%, retaining hopes that it can return inflation to its 4% target in 2024. Annual inflation was running at 11.8% as of Feb. 6, it said.
"If pro-inflation risks intensify, the Bank of Russia will consider the necessity of a key rate increase at its upcoming meetings," the bank said in a statement.
It said short-term inflation risks had increased again, including the possibility that external restrictions on the Russian economy's potential prove stronger than previously thought.
The bank now sees its key rate in the 7.0%-9.0% range this year, up from 6.5%-8.5% in the previous forecast.
The bank adjusted its 2023 GDP forecast to between growth of 1.0% and a contraction of 1.0%, from a 1.0%-4.0% decline previously. The International Monetary Fund expects the Russian economy to grow 0.3% this year.
The decision came in line with a Reuters poll of analysts, who expected both the more hawkish signal and the hold.
The rhetoric has clearly become harsher, said BCS World of Investments expert Mikhail Zeltser.
"The regulator has the opportunity to raise the rate, but economic development while facing a forced transformation is at stake," Zeltser said.
OIL
The central bank also lowered its assessment of the average Urals oil price for 2023 in light of embargoes on Russian crude and oil products, imposed by Western countries over Russia's actions in Ukraine, to $55 per barrel from $70.10.
That has implications for Russia's 2023 budget, which is currently based on the $70.10 price. In January, Russia recorded a budget deficit of almost $25 billion, as expenditures soared and revenues slumped.
After an estimated GDP contraction of 2.5% last year as Western sanctions took their toll, Russia's economic outlook for 2023 appears brighter, but labour shortages, falling energy revenues and the widening deficit all pose challenges.
"In case of a further budget deficit expansion, pro-inflation risks will rise and tighter monetary policy may be required," the bank said.
Central Bank Governor Elvira Nabiullina will shed more light on the bank's forecasts and policy in a media briefing at 1200 GMT.
The next rate-setting meeting is scheduled for March 17.
