LONDON (MarketWatch) -- The Central Bank of Russia on Friday hiked its key rate to 7.5% from 7%, citing higher inflation risks. The bank said in a statement the risk of inflation exceeding the 5% target at the end of 2014 has "increased substantially" due to exchange-rate dynamics and "unfavorable conditions" in trade markets. The rate increase comes amid heightened tensions between Russia and Ukraine, with the U.S. late Thursday accusing Russia of violating its commitment to easing tensions in eastern Ukraine. Russia's blue-chip MICEX index xx:mcx traded 0.8% lower at 1,289.62, while the ruble trimmed its loss against the dollar USDRUB, +0.00% , with the greenback buying 35.868 rubles compared with 36.013 ahead of the rate hike.