Russia Will Probably Refrain From Interest-Rate Cut on Inflation

Russia’s central bank will probably refrain from cutting its main interest rates, leaving them unchanged for a 12th as policy makers await a government decision on regulated tariffs with inflation still above target.

Bank Rossii will keep the refinancing rate at 8.25 percent at tomorrow’s meeting in Moscow, according to 14 of 22 economists in a Bloomberg survey. Eight forecast a cut to 8 percent. The main lending and deposit rates will also stay unchanged, two separate surveys show.

Elvira Nabiullina, who became central bank chairman in June, is opting against interest-rate cuts with inflation exceeding policy makers’ goal for a year even as the economy grows at its weakest pace since 2009. The Economy Ministry, which is seeking ways to curb consumer-price growth and spur expansion, has proposed freezing utilities costs next year.

“The key factors for the central bank are inflation and a decision on tariff growth,” Vladimir Kolychev, head of research at Societe Generale SA’s Rosbank (ROSB) unit in Moscow, said yesterday by phone. “The central bank wants more clarity on the pace of tariff growth next year before embarking on a rate-cutting cycle.”

The three-month MosPrime rate, which large Moscow banks say they charge one another, may drop 32 basis points, or 0.32 percentage point, in the next three months, forward-rate agreements tracked by Bloomberg show. The ruble has gained 0.1 percent against the dollar in the last month, the fourth-best performer among 24 emerging-market currencies Bloomberg tracks.

Easing Cycles

Eastern European central banks have begun ending or slowing policy easing as the euro area’s recovery from recession buoys the region’s growth. Hungary lowered borrowing costs by 20 basis points on Aug. 27 following 12 months of quarter-point cuts, while Poland held its main rate at 2.5 percent on Sept. 4 after a nine-month cycle of reductions. Serbia kept its benchmark at 11 percent for a third month this week.

Russian inflation remained at 6.5 percent from a year earlier in August, more than the 6.4 percent median estimate in a Bloomberg survey. The central bank, which is targeting a rate of 5 percent to 6 percent, may start “a gradual reduction” in borrowing costs as price growth slows, Nabiullina said Sept. 3 in an interview with the state-run Itar-Tass news service.

While monetary-policy makers want to bring inflation next year down to 4.5 percent, allowing a tolerance range of 1.5 percent either side, the goal requires government limits on tariff increases, Nabiullina said in the interview.

Tariff Boost

The proposed freeze on regulated-price growth for natural gas, power and rail monopolies next year, which state companies such as OAO Russian Railways oppose, may help reduce the inflation rate by 40 to 50 basis points, according to Economy Minister Alexei Ulyukayev, who was first deputy central bank chairman before taking his position in June.

If tariffs are frozen, the ministry may increase its 2014 economic-growth forecast to 3 percent from 2.8 percent, he said in a Sept. 9 interview with the Interfax news service.

Gross domestic product will rise 1.8 percent this year, the Economy Ministry said last month, trimming its April forecast for a 2.4 percent advance. The economy grew 1.2 percent from a year earlier in the second quarter, the worst result since the last three months of 2009.

While monetary easing policy may “ease the pain” in the short term, it won’t help bolster economic growth in the longer run, according to Nabiullina.

“While economic expansion is decelerating, it’s not because of the monetary situation,” Natalia Orlova, chief economist at Alfa Bank, Russian biggest non-state lender, said yesterday by phone from Moscow. “It’s hard to break stagnation in industry with monetary factors.”

To spur credit growth, Nabiullina created a one-year, floating-rate auction following her first rates meeting in July. After banks took 306.8 billion rubles ($9.3 billion), or 61 percent, of the 500 billion rubles on offer, policy makers may announce a second facility, Vladimir Osakovskiy, chief Russia economist at Bank of America Merrill Lynch in Moscow, said Sept. 10 in a note.

To contact the reporter on this story: Olga Tanas in Moscow at

To contact the editor responsible for this story: Balazs Penz at

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