Russia Holds Rates for Eighth Month as Inflation Quickens
Russia’s central bank refrained from raising borrowing costs for an eighth month even as inflation accelerated, saying higher interbank rates were already subduing lending growth.
Bank Rossii’s main refinancing rate was left at 8 percent, a quarter-point above the record low, the Moscow-based central bank said in a statement on its website today. The decision was predicted by 18 of 19 analysts in a Bloomberg survey. The overnight auction-based repurchase rate was kept at 5.25 percent and the overnight deposit rate will stay at 4 percent.
Russia, the only major emerging economy that hasn’t lowered borrowing costs in 2012, is weighing tighter monetary policy as consumer-price growth nears the 6 percent top end of Bank Rossii’s target range for the year. Inflation quickened to 5.7 percent as of Aug. 6 on an annual basis, the fastest pace since December, the bank said today.
“The best option would be to stay cautious in terms of monetary policy,” Piotr Matys, a London-based economist at 4Cast Ltd., said in a telephone interview. “The economy is doing rather well so far this year but there’s lots of downside risk stemming from offshore factors.”
The ruble extended losses against the dollar after the decision and was 0.8 percent weaker at 31.9275 at 1:52 p.m. in Moscow. Russia’s sovereign ruble-denominated debt due in July 2015 fell, sending the yield up seven basis points, or 0.07 percentage point, to 7.32 percent.
Policy makers dropped wording used in last month’s statement that money-market rates were at an acceptable level for the “nearest future.” In every other decision on rates this year, the bank had said interbank borrowing costs were at an acceptable level for the coming months.
The move opens the way for policy makers to raise rates by a quarter point in September when the annual inflation figure may breach the central bank’s target and exceed 6 percent, Vladimir Kolychev and Vladimir Tsibanov, analysts at OAO Rosbank (ROSB), said in an e-mailed note.
Bank Rossii said in the statement that economic output was close to its potential, meaning prices weren’t being driven upward by demand. The current unemployment and retail lending trends will support domestic demand, while policy makers said slower industrial growth doesn’t appear to pose risks to the economy.
China’s “very disappointing trade balance” and Russia’s narrower trade surplus in June show that slower global growth could hurt the economy by eroding demand for exported commodities, 4Cast’s Matys said.
Russia’s economy probably grew 4 percent in the second quarter, down from 4.9 percent in the first three months of the year, according to the median estimate of 18 economists in a Bloomberg survey. The Moscow-based Federal Statistics Service will report the number today at 4 p.m.
The central bank held its key rates “based on an assessment of inflation risks and the prospects for economic growth, taking into account the continued uncertain external economic situation as well as tighter monetary conditions in the economy.”
The three-month MosPrime rate, which the biggest Moscow banks say they charge one another for loans, peaked at 7.31 percent this month, the highest level since 2009. The rate may ease 22 basis points in the next three months, according to forward-rate agreements tracked by Bloomberg.
Bank Rossii has left borrowing costs unchanged since December, when it lowered the refinancing rate by a quarter-point and raised the deposit rate by the same amount.
Consumer-price growth accelerated to 5.6 percent in July from a year earlier, the fastest this year and up from 4.3 percent in June. The increase was driven by the government’s decision to delay annual increases of utility costs to July 1 as well as by rising food prices.
Droughts that damaged crops from the U.S. to Russia helped drive up global food costs 6.2 percent last month, the most since 2009 in July, according to the United Nations’ Food & Agricultural Organization.
“Worsening conditions on the global and Russian food markets, as well as forecasts for the main agricultural crops this year, are a significant source of inflation risks,” policy makers said in the statement.
After a similar global food-price shock in 2010, policy makers began raising borrowing costs in February 2011 amid signs domestic demand was improving, Vladimir Tikhomirov, chief economist at Otkritie Capital in Moscow, said in a note to clients yesterday.
“A persistent 30 percent increase in wheat prices could add around 1.5 percentage points to headline inflation in 2012, with a subsequent increase later in 2013,” Tikhomirov said. “The question is what the central bank will do to maintain its credibility.”
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