Russia Central Bank’s GDP View Dims as Rates Kept on Hold
Russia’s central bank signaled a more pessimistic stance on growth as it left borrowing costs unchanged for a sixth month as President Vladimir Putin’s economic aide prepares to take over monetary policy in June.
Moscow-based Bank Rossii held the refinancing rate at 8.25 percent, according to a statement on its website today, matching the forecasts of all 28 economists surveyed by Bloomberg. The overnight and one-week repurchase rates used to provide banks with cash were kept at 5.5 percent, while the overnight deposit rate stayed at 4.5 percent.
Central bank Chairman Sergey Ignatiev is leading a charge against inflation, which has surged to the fastest pace in 18 months, resisting government pressure to stimulate a flagging economy. While policy makers said current market rates are acceptable, today’s statement dropped wording that Russian growth is near potential and removed a phrase calling risks posed by tighter monetary policy “insignificant.”
“The wording in the statement is what drew most interest,” Maxim Oreshkin, chief economist for Russia at VTB Capital, said by phone. “They moved toward a softer position on inflation and economic growth, which brings us closer to a possible reduction in rates.”
The ruble pared declines against the central bank’s target dollar-euro basket after the decision, trading down 0.1 percent at 34.8880 as of 4:18 p.m. in Moscow. The Micex Index kept gains, trading up 0.6 percent.
While Russia’s economy is growing at the weakest pace since a recovery began in 2010, inflation has gathered speed, stoked by a bad harvest and higher excise taxes and transport costs.
Gross domestic product increased 1.6 percent from a year earlier in January, compared with 2.4 percent in December, less than Prime Minister Dmitry Medvedev’s 5 percent long-term growth goal. Consumer prices rose 7.3 percent in February, quickening from 7.1 percent in January and 6.6 percent in December.
While sentiment indicators, lending and labor-market conditions continue to support economic expansion, retail sales have slowed, investment growth remains weak and industrial output has declined, according to today’s statement. Inflation will exceed the central bank’s target range of 5 percent to 6 percent until the second half of the year, policy makers said.
“Considering current domestic and external trends, the level of market interest rates is seen as appropriate to achieve a balance of the main macroeconomic risks,” the bank said, without giving a time horizon like it has in the past.
Price growth will remain policy makers’ focus, according to Vladimir Pantyushin, chief economist for Russia at Barclays Plc’s investment-banking unit in Moscow.
“The central bank continues to stress that inflation remaining higher than target may increase inflationary expectations, which play an important role in Russia,” he said by phone.
Economists in a Bloomberg survey predict a quarter-point reduction in the refinancing rate in the second quarter and another in the fourth. Ignatiev said Feb. 15 that he “hopes” inflation will start to decelerate in the coming months, with slower price growth making rate cuts “possible.”
Putin, who said this month that all state institutions should be steered toward promoting growth, nominated ally Elvira Nabiullina, a former Economy Minister, to take over in the summer from Ignatiev, who’ll stay on as an adviser.
Her appointment has triggered speculation that monetary policy will be loosened after officials including Deputy Economy Minister Andrei Klepach sought lower borrowing costs to revive growth in what First Deputy Premier Igor Shuvalov called a “huge argument” between the government and policy makers.
“The central bank has extended its discussion of an ongoing slowdown in the economy and has not mentioned that it is close to potential,” Vladimir Osakovskiy, chief Russia economist at Bank of America Merrill Lynch in Moscow, said by e-mail. “The statement is consistent with our expectations that the bank will start cutting rates as soon as inflation starts slowing in year-on-year terms, which we expect in May-June.”
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