The Central Bank of the Russian Federation kept its key rate at 7.25% per annum, saying that annual inflation is expected to return to its target by early 2020.

Annual inflation stood at 2.3% in June, and is projected to come in the range of 2.5% to 2.6% in July, in line with the bank's estimates.

The bank forecasts inflation to reach 3.5% to 4% at the end of 2018, and temporarily top 4% in 2019 due to a planned increase of the value added tax. Consumer prices are projected to grow at an annual rate of 4% in early 2020, matching the bank's target.

"The balance of risks is shifted towards proinflationary risks. Uncertainty persists over how strongly the tax measures may affect inflation expectations and how the external conditions will develop," the central bank said in a statement.

"The Bank of Russia considers that monetary policy is highly likely to shift to a neutral stance in 2019," it added.