Russia Refrains From Rate Increase After Inflation Eased
Russia, the largest emerging economy to raise interest rates this year, refrained from increasing borrowing costs after inflation unexpectedly slowed in October for the first time in six months.
Bank Rossii left the refinancing rate at 8.25 percent at a meeting in Moscow, half a percentage point above the record low, the regulator said in a statement on its website today. The move was forecast by 21 of 23 economists in a Bloomberg survey. Policy makers held their main short-term lending and deposit rates at 5.5 percent and 4.25 percent.
The decision follows a surprise increase in September that policy makers today credited for tamping down inflation expectations. The central bank also cited a stabilization in food costs that pushed price-growth beyond this year’s target range. The statement’s wording suggests an end to the “mini-cycle” of rate increases, according to Vladimir Kolychev, chief economist at Societe Generale SA’s OAO Rosbank (ROSB) unit in Moscow.
“The rhetoric looks to be less hawkish as domestic demand continued to slow down recently, while inflation showed encouraging signs of stabilization,” Kolychev said in an e-mailed response to questions. While price growth may still reach 7 percent in December, the weakening core inflation may be a more important sign, he said.
The ruble weakened 0.2 percent to 31.5483 per dollar as of 12:27 p.m. in Moscow. Forward rate agreements showed the three-month MosPrime rate may fall 7 basis points, or 0.07 percentage point, in the next three months, up from a 2 point fall before the announcement, according to data compiled by Bloomberg.
Overnight borrowing costs on Russia’s interbank market also fell, dropping 13 basis points to 5.7150 percent, according to data compiled by Bloomberg. A close at that level would be the lowest since Oct. 8.
The currency will probably continue to be driven by external factors, while short-term interest rates will respond to fluctuations in the amount of rubles available to lenders domestically, according to ING Groep NV.
“For non-resident investors expecting the final liberalization of the OFZ market in early 2013, the less hawkish central bank stance could be viewed as a good sign in terms of interest-rate risk,” Dmitry Polevoy, chief economist at ING Groep NV in Moscow, said in a note to clients.
Bank Rossii Chairman Sergey Ignatiev, whose third and final term at the helm of Bank Rossii ends in 2013, needs to rein in price gains next year as the economy slows and his counterparts from Poland to the Philippines reduce borrowing costs.
Consumer-price growth slowed to 6.4 percent as of Nov. 6 from a year earlier, Bank Rossii said today. That’s down from 6.5 percent in October. Core (RUCPBI) inflation, which excludes volatile costs such as energy, decelerated for a first time on a monthly basis since May, the Federal Statistics Service said Nov. 6.
“There was a stabilization of growth rates for all the main consumer inflation components, including food, that were the main source of accelerating inflation in recent months,” policy makers said in the statement. September’s rate increases has led to “more measured” expectations for inflation, the regulator said.
Russia may hold inflation below 7 percent this year, central bank First Deputy Chairman Alexei Ulyukayev said in the State Duma today, Interfax reported. Consumer prices may advance 0.6 percent in November from the previous month, Deputy Economy Minister Andrei Klepach said at a press conference in Moscow today. Prices rose 0.5 percent in October and 0.6 percent in September on a monthly basis.
Most Russians named rising prices as their biggest concern, topping corruption, poverty and drug abuse, in an August poll published by the Moscow-based Levada Center. Combatting inflation is the government’s top priority, even at the expense of short-term growth, President Vladimir Putin said at an investment conference in Moscow on Oct. 2.
Monetary-policy makers said in today’s statement that there were signs of “stabilizing” lending, while economic indicators for September maintained the earlier trend that suggested a “cooling” of growth.
“At the same time, the threat of a substantial economic slowdown linked to monetary tightening is seen as insignificant,” the central bank said.
Russia’s M2, the broadest measure of money supply, grew 14.8 percent in September, the slowest since November 2009, according to data compiled by Bloomberg.
Policy makers want to hold inflation at 5 percent to 6 percent next year, half a percentage point higher than previously targeted, after conceding consumer-price growth breached that range in 2012.
“As in the previous months, the central bank did not include the paragraph on the short- and medium-term adequacy of the interest rates,” Yaroslav Lissovolik, head of research at Deutsche Bank AG in Moscow, said in an e-mail.
“The central bank is aiming to secure some room for maneuver going into the end of this year, though clearly compared to earlier statements the tone of the central bank is more dovish,” he said.
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