Russia Seen Refraining From Rate Increase on Ukraine

Russia’s central bank will probably refrain from seeking to counter accelerating inflation with higher interests rates as the economy comes under increasing strain in the escalating Ukrainian crisis.

Policy makers will leave the benchmark one-week auction rate will at 7 percent at a meeting in Moscow tomorrow, according to 22 of 23 economists in a Bloomberg survey. One analyst forecast an increase to 8 percent. The benchmark won’t be reduced until at least a meeting in June, Chairman Elvira Nabiullina said April 2.

The escalating crisis in Ukraine has led investors to punish Russian assets, leaving policy makers to struggle with an economy on the brink of recession with the inflation rate above the central bank’s target for a 19th month. The worst standoff against the U.S. and Europe since the Cold War is exacting a cost in the bond market, with Russia scrapping debt sales yesterday for the seventh time in eight weeks as the ruble fell.

Policy makers are set to “confirm that rates will remain at the current level in the coming months or may be even higher, depending on the situation in Ukraine, which is obviously the main driving factor for the ruble right now”, Piotr Matys, an emerging-markets economist at 4Cast Ltd in London, said yesterday by phone.

The ruble has lost almost 8 percent this year against the dollar, the second-worst performance among 24 emerging-market currencies tracked by Bloomberg after Argentina’s peso.

Missing Target

Consumer-price growth accelerated to 6.9 percent in March from year earlier after 6.2 percent in February. Inflation may reach 5 percent to 6 percent in 2014, Nabiullina said March 27, compared with the central bank’s 5 percent target this year. It missed its target range of 5 percent to 6 percent in 2013.

Inflation may peak in May or June at 7.5 percent, Maxim Oreshkin, head of the Finance Ministry’s strategic planning department, told reporters April 21. Speaking during an annual televised call-in show last week, President Vladimir Putin said he hoped the central bank could keep inflation at 6 percent to 6.5 percent.

Inflation vaulted past issues in housing and utilities to become the biggest problem for Russians, according to a poll published April 14 by the state-run All-Russia Center for the Study of Public Opinion.

“We expect inflation to slow down in July and it’s unlikely that the central bank will change the rate before that,” said Olga Sterina, analyst at UralSib Capital in Moscow.

Temporary Increase

Policy makers kept their key rate at 7 percent on March 14 after what the central bank called a temporary increase from 5.5 percent the previous week after Putin secured lawmakers’ approval to send troops into Ukraine.

The three-month MosPrime rate, which large Moscow banks say they charge one another, may rise 13 basis points, or 0.13 percentage point, in the next three months, according to forward-rate agreements tracked by Bloomberg.

Gross domestic product may expand less than 0.5 percent this year or not grow at all, according to Finance Minister Anton Siluanov. GDP grew 1.3 percent in 2013, the slowest pace in four years. Capital outflows surged to $50.6 billion in the first quarter from $27.5 billion a year earlier.

“Capital outflows reduce the possibility for investment growth in the economy and create risks of an unbalanced budget,” Siluanov said April 15.

To contact the reporters on this story: Olga Tanas in Moscow at; Anna Andrianova in Moscow at

To contact the editors responsible for this story: Balazs Penz at Paul Abelsky

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