Russia Holds Main Rates for 7th Month, Takes Easing Steps

Russia’s Central Bank Leaves Refinancing Rate Unchanged at 8.25%
A Russian national flag flies above Russia's central bank in Moscow. Photographer: Andrey Rudakov/Bloomberg

Russia’s central bank took the biggest step toward easing monetary policy since raising all interest rates in September as the economy continued to slow.

Rates on loans backed with gold and non-market collateral were cut by a quarter point, as were the costs of some longer-term repurchase operations, the central bank in Moscow said in a statement on its website today. The refinancing rate was held at 8.25 percent, half a point above the record low, in line with forecasts by 17 of 21 economists in a Bloomberg survey.

The decision shows policy makers responding to government criticism that high interest rates are stifling growth as central banks from Hungary to Vietnam cut borrowing costs. Inflation was 7.2 percent as of March 25, above this year’s target range of 5 percent to 6 percent, even as economic growth decelerates to the slowest pace since a recession in 2009. Central bank Chairman Sergey Ignatiev, whose final term ends in June, may elaborate on the decision in a speech tomorrow.

“This is a compromise decision,” said Natalia Orlova, chief economist at Moscow-based Alfa Bank, Russia’s largest private lender. “Today’s decision is a sign of the central bank adjusting to the government’s wishes.”

The overnight and one-week auction-based repurchase rates, the main instruments used to provide banks with cash, will stay at 5.5 percent and the deposit rate will remain at 4.5 percent, in line with two other surveys.

The ruble was 0.2 percent weaker against the dollar at 35.1350. The Micex Index added 0.4 percent to 1,433.63 by 1:01 p.m. in Moscow.

‘Continued Slowdown’

“The pace of the main macroeconomic indicators in February 2013 showed a continued slowdown in economic growth as well as increased risk of its deceleration,” Bank Rossii said in the statement. Policy makers dropped last month’s phrase that market rates were acceptable.

Gross domestic product expanded just 0.1 percent in February from a year earlier, slowing from a 1.6 percent pace in January, according to the Economy Ministry. The economy probably grew 2 percent in the fourth quarter of last year, the slowest pace since a 2009 contraction, the Federal Statistics Service may report this week.

Central bank Deputy Chairman Sergey Shvetsov sparred with Andrei Klepach, the deputy economy minister who oversees Russian forecasts, at a conference last week over whether lower rates would boost the stumbling economy.

Keeping Independence

The main refinancing rates were left unchanged to undercut speculation that the central bank is “losing its independence,” according to Alfa’s Orlova.

The government and lawmakers are studying the possibility of expanding the central bank’s mandate to include some responsibility for ensuring economic growth, President Vladimir Putin’s spokesman, Dmitry Peskov, said March 27.

The discussions follow Putin’s March 12 nomination of his aide Elvira Nabiullina, a former economy minister, to replace Ignatiev. She is scheduled to meet lawmakers from the Just Russia party today and attend a committee hearing on her confirmation tomorrow.

“We view the decision as easing,” said Vladimir Osakovskiy, chief economist for Russia at Bank of America Merrill Lynch in Moscow. “The central bank has given a rather benign view on inflation, which is expected to slow, while fully acknowledging risks to economic growth.”

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