Russia’s central bank won’t cut its key rate until at least a meeting in June, Chairman Elvira Nabiullina said, acknowledging the threat of missing forecasts for inflation, economic growth and capital outflows this year.
A weaker ruble is putting inflation at “high” risk of overshooting the central bank’s 5 percent target while economic growth is “likely” to slow below 1 percent, falling short of its forecast for 1.5 percent to 1.8 percent expansion, Nabiullina said at a banking conference in Moscow today. The economy will be sapped by capital outflows, which are set to overshoot the central bank’s $20 billion forecast, she said.
The standoff over Crimea is stunting economic growth that unexpectedly accelerated in the fourth quarter before tensions with Ukraine escalated. The mix of rising prices and a foundering economy is handcuffing the central bank’s ability to deploy stimulus, with policy makers forced in March to raise borrowing costs the most since 1998 to counter market turmoil.
“The geopolitical risks are significant, especially if our banks and companies have a limited ability to refinance on Western markets and revised rating outlooks may negatively affect financial stability,” Nabiullina said. “At the central bank, we’re watching to see how we may react to that, including by providing the needed liquidity if needed.”
The ruble is down about 7 percent against the dollar this year, the worst-performer after Argentina’s peso among 24 emerging-market peers tracked by Bloomberg. Russia’s local currency bonds have handed investors an 8.6 percent loss since the start of the year in dollar terms, the worst showing among 31 countries’ debt in the Bloomberg Emerging Market Local Sovereign Index.
Nabiullina’s comments elaborate on the outlook provided after the central bank’s meeting on March 14, when its main one-week auction rate was kept on hold after what policy makers called a temporary interest-rate increase the previous week. The monetary authority said it didn’t “intend to lower the key rate in the coming months,” according to a statement accompanying its decision.
The benchmark was increased to 7 percent from 5.5 percent on March 3. The three-month MosPrime rate, which large Moscow banks say they charge one another, may decline 44 basis points, or 0.44 percentage point, in the next three months, according to forward-rate agreements tracked by Bloomberg. That’s a reversal from 40 basis points of increases seen as of March 14.
President Vladimir Putin’s move to annex Ukraine’s Crimea peninsula last month prompted the U.S. and European Union to level some sanctions on individuals, spurring capital flight. Outflows were probably close to $70 billion in the first three months, Deputy Economy Minister Andrey Klepach told reporters on March 24. That compares with $63 billion in all of 2013.
Gross domestic product may contract if capital outflows reach $150 billion, Economy Minister Alexei Ulyukayev said last week.
GDP will expand 1.2 percent in 2014, according to the median estimate of 37 economists in a Bloomberg survey. Russia faces a 45 percent probability of a recession within the next 12 months, according to the median estimate of 11 economists in a separate poll. That’s the highest since Bloomberg started to track the measure in June 2012.
The economy gained 2 percent in the fourth quarter from the same period a year earlier, compared with a revised 1.3 percent in the third quarter, the Federal Statistics Service in Moscow said yesterday.
The central bank sold $22.3 billion and 2.3 billion euros ($3.1 billion) in March to stem the ruble’s depreciation, according to a report published today. The foreign-currency sales were the biggest since January 2009, central bank data show.
“We believe our main forecast for economic growth in 2014 is unlikely to be realized,” Nabiullina said. Even so, “we expect that inflation will stabilize in the second half.”