Russia’s central bank refrained from easing borrowing costs after inflation surged to a 15-month high, warning of the threat of faster price growth and defying government calls for lower rates to support the slowing economy.
Bank Rossii held the refinancing rate at 8.25 percent for a fifth month at a meeting in Moscow today, it said in a statement on its website. The move was forecast by 21 of 22 economists in a Bloomberg survey. Price growth will probably remain above the upper limit of this year’s 5 percent to 6 percent target range until the second half, a prolonged run that risks heightening expectations of higher inflation, according to the statement.
Policy makers are resisting growing government pressure to ease monetary policy after economic growth last year slowed to 3.4 percent, the weakest since a 2009 slump. The central bank has a free hand to raise or lower borrowing costs and relies only on its own forecasts in steering policy, First Deputy Chairman Alexei Ulyukayev has said.
“It’s comforting to see that the central bank was able to withstand the direct political pressure to ease monetary policy,” Vladimir Tikhomirov, chief economist at Otkritie Financial Corp., said in a telephone interview. “The change in the statement’s tone reflects what Ulyukayev said before the meeting: that the central bank has the freedom to move rates either up or down.”
The ruble strengthened 0.3 percent to 30.0860 against the dollar at 3:37 p.m. in Moscow. The Micex Index of 50 stocks climbed less than 0.1 percent to 1,517.12.
“The statement puts a greater emphasis on inflationary risks than risks of slower economic growth,” Alexander Morozov, chief economist for Russia at HSBC Holdings Plc in Moscow, said by phone. “It’s a hint at the potential tightening of policy, especially since the central bank is saying that inflation will be above the target range in the first half.”
While industry remains weak and investment growth is slowing, economic output remains near full capacity, according to the statement. The tight labor market and consumer lending will help support demand, Bank Rossii said.
The central bank kept the overnight and one-week repurchase rates used to provide banks with cash at 5.5 percent, with the overnight deposit rate held at 4.5 percent, also in line with forecasts.
Government officials including First Deputy Prime Minister Igor Shuvalov and Finance Minister Anton Siluanov have joined the Economy Ministry in the last month in saying interest rates should be reduced because they’re smothering growth. President Vladimir Putin is required to nominate a new central bank chief three months before Chairman Sergey Ignatiev’s third and final term ends in June.
Ulyukayev said Jan. 16 that output is near potential and easing borrowing costs would be counter-productive.
“Our relations with the government are just as they should be, and the government respects the central bank’s independence on monetary policy,” Ulyukayev said Feb. 6. “We’re going to make a decision based on our understanding, after having listened to all the arguments, including from our respected colleagues in the government.”
Consumer prices rose 7.1 percent in January from a year earlier, which was higher than all 21 forecasts in a Bloomberg survey. Inflation may accelerate to 7.3 percent to 7.4 percent in February from a year earlier, the Economy Ministry said in a report yesterday.
The central bank set all reserve requirements for commercial lenders at 4.25 percent, starting next month, according to the statement. Mandatory ratios for liabilities to non-resident companies had been 5.5 percent since April 1, 2011, while the requirement for domestic liabilities had been at 4 percent.
The change is “neutral” for monetary policy and the financial industry, Bank Rossii said, adding that the ratios were less useful for influencing capital flows as the ruble moves toward a free float.
Bank Rossii also refrained from offering guidance on whether it sees market rates as appropriate. Last month, the central bank dropped wording that rates were suitable for the “nearest future,” which Ulyukayev has said means a change to rates is possible as early as the next meeting.
“The lack of that key phrase means that something needs to happen with rates,” Vladimir Osakovskiy, chief economist at Bank of America Merrill Lynch in Moscow, said by telephone today.
“The slowing economy we’re seeing reduces the inflationary risks and creates a good reason to start cuts,” he said. “Still, inflation remains above forecast. The central bank isn’t likely to lower rates in the nearest future.”
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