Markets had expected 2 percentage point increase to 23
Putin called publicly on Thursday for 39;balanced39; action
Central bank had been heavily criticised by business
Economy heavily skewed by conflict in Ukraine

MOSCOW, Dec 20 Reuters The Russian central bank kept its key interest rate on hold at 21 on Friday, surprising the market, which had expected a 2 percentage point increase, and saying recent tightening had created conditions for inflation to fall towards its target.

The decision came a day after President Vladimir Putin in a nationwide phonein publicly called for a balanced decision from the bank, which is having to manage the inflationary effects of the militarisation of the economy due to the conflict in Ukraine.

Powerful business leaders had complained that soaring rates were stifling investment, but 23 of 27 economists in a Reuters poll had still expected a hike to 23.

Given the notable increase in interest rates for borrowers and the cooling of credit activity, the achieved tightness of monetary conditions creates the necessary prerequisites for resuming disinflation processes and returning inflation to target, the central bank said in a statement.

Inflation stands at 9.5, far above the 4 target. But the central bank said its tightening had already slowed lending and dampened demand, and that it would assess the need for a hike at its next meeting on Feb. 14.

The central bank is independent by law, and Putin has given governor Elvira Nabiullina…