The Russian Central Bank on Friday raised its key lending rate by 0.25 percentage points to 7.5 percent on higher inflation expectations.

It was the first rate hike since 2014 when a currency crisis broke out following Western sanctions.

"Changes in external conditions observed since the previous meeting of the Board of Directors have significantly increased pro-inflationary risks," it said in a statement.

The bank now forecasts Russia's annual inflation to be 3.8-4.2 percent this year, compared to its previous forecast of 3.5-4.0 percent.

Annual inflation will peak in the first six months of 2019, reaching 5.0-5.5 percent by the end of 2019, it said.

The bank warned that it could increase the key rate further, "taking into account inflation and economic dynamics against the forecast, as well as risks posed by external conditions and the reaction of financial markets."

The Russian ruble has lost nearly 20 percent of its value in recent months as a result of multiple U.S. sanctions. It went beyond 70 per U.S. dollar on the Moscow exchange on Monday for the first time since March 2016 due to fears of new sanctions.