By Anatoly Kurmanaev and Paul Hannon 

MOSCOW -- Russia's central bank raised interest rates Friday, moving to defend the ruble against market volatility and inflation as global investors question the outlook for emerging-market economies and the possibility of fresh U.S. sanctions.

The Bank of Russia raised its key interest rate to 7.5% from 7.25%, ending a series of cuts that brought it down from a peak of 17% at the end of 2014 that was introduced in the wake of earlier sanctions imposed on the country by the U.S. and Europe.

The raise, which surprised most economists, eased investor concerns over the bank's freedom of action in maintaining Russia's macroeconomic stability. In recent weeks, President Vladimir Putin's prime minister and chief economic adviser both suggested lending rates should fall to boost growth.

The bank's move ended weeks of speculation over the course of Russia's monetary policy, underscoring Elvira Nabiullina's willingness to take prompt action when confronted with threats to economic stability, even when that meant going against the wishes of Mr. Putin's economic team.

"Our goal is to meet the inflation target, this is the essence of our independence," central bank chief Ms. Nabiullina told reporters in Moscow after the rate decision. "There's a growing uncertainty over sanctions against Russia, the growing geopolitical risks have increased the outflow of capital from emerging markets."

She said she would consider further hikes this year if the inflationary pressures caused by rising sales tax and currency depreciation don't subside. The central bank now expects inflation to increase to as high as 5.5% by the end of next year, above its 4% target.

To help stabilize the ruble, the central bank will stop buying foreign currency this year, Ms. Nabiullina said. The ruble is down more than 14% against the dollar so far this year, although it rose 0.7% following the rate decision Friday.

The markets reacted positively to what they saw as the assertion of Ms. Nabiullina's independence. The country's benchmark 2-year bonds due in 2020 rose slightly following the rate decision. Moscow's main stock index rose 1% Friday.

"With this decision Nabiullina is showing she's prepared to make decisive decisions to react to tactical challenges that are arising in the markets," said Oleg Kouzmin, chief Russia economist at investment bank Renaissance Capital. "Her mandate is strong and she continues to enjoy the market's trust."

Mr. Kourmin said he expects the key rate to rise to 8% in the coming months until emerging market volatility subsides.

Her assertive pursuit of stability has earned her the praise of the International Monetary Fund and big investment funds, and made it possible for her to have a bigger impact on the economy with less action than many of her developing country counterparts.

In Turkey, by contrast, the central bank's belated decision on Thursday to raise its key rate in response to a plummeting currency was quickly questioned by President Recep Tayyip Erdogan, weakening its impact. Similar moves to raise interest rates have recently occurred in Argentina, Indonesia and other developing economies.

"We consider that this would create a more positive attitude to emerging markets, to which Russia belongs," Ms. Nabiullina said, referring to Turkey's hike.

While policy makers face a variety of domestic problems in those countries, a common factor driving their recent moves is a series of rate increases by the Federal Reserve, which has led to an flow of capital into the U.S. and away from developing economies.

As a result, many central banks in the developing world face an unpleasant choice on whether to raise their interest rates as the dollar strengthens and investors sour on emerging markets. Raising rates can help limit capital outflows but could crimp economic growth. Leaving rates unchanged could make currencies more prone to further declines, creating the risk of higher inflation.

Russia faces a particular threat of capital outflows at a time of heightened tensions with the West.

"It...looks like the bank's board made the move today to stem capital outflows resulting from fears about new U.S. sanctions," wrote William Jackson, an analyst at Capital Economics, in a note to clients.

-- Jon Sindreu in London contributed to this article.

Write to Anatoly Kurmanaev at Anatoly.kurmanaev@wsj.com and Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

September 14, 2018 11:05 ET (15:05 GMT)