Russia to Hold Rates as Downturn Sets Stage for Easing

Russia will probably leave interest rates unchanged as the central bank considers policy options to tackle the slowest growth since a slump ended three years ago.

Bank Rossii will hold the refinancing rate at 8.25 percent for a fourth month at a Jan. 15 meeting in Moscow, according to all 16 economists in a Bloomberg survey. The overnight and one-week repurchase rates used to provide banks with cash will stay at 5.5 percent and the overnight deposit rate will be kept at 4.5 percent, two separate surveys showed.

Chairman Sergey Ignatiev is weighing the need for monetary stimulus in his final months at the helm of Bank Rossii as his counterparts from Poland to Colombia lower interest rates to revive economic growth. As the effects of a poor harvest subside and inflation pressures moderate, Russia’s expansion is stumbling to the weakest pace since a recovery began in 2010.

“Right now there’s no necessity to change rates, and they’ll need to wait to see how the inflation situation develops,” Vladimir Tikhomirov, chief economist at Otkritie Financial Corp. in Moscow, said by telephone Jan. 9. “There may be an acceleration in the first quarter because of the year earlier comparison, but inflation for the full year should drop significantly.”

The ruble last year posted the best performance among currencies of the four major emerging nations when it appreciated 5.7 percent against the dollar, beating losses for the Brazilian real and India’s rupee last year and outpacing the Chinese yuan’s 1 percent advance. The ruble retreated 0.3 percent to 30.2650 per dollar as of 5:28 p.m. in Moscow. The Micex Index gained 0.3 percent to 1,511.68.

Acceptable Rates

Policy makers led by Ignatiev, whose third and final term ends this year, left the main lending rates unchanged last month while cutting the cost to swap foreign currency into rubles by a quarter-point and increasing the overnight deposit rate by the same amount. Bank Rossii said money-market rates are “acceptable for the nearest future” in its Dec. 10 statement, using the phrase for the first time since July.

The central bank is unlikely to change rates this month, Alexey Ulyukayev, the first deputy chairman who oversees monetary policy, said in a Dec. 19 interview with Interfax. The phrase “nearest future” is understood by the market to mean no change at the next meeting, Ulyukayev was cited as saying by the news service.

Price growth quickened to 6.6 percent in December from a year earlier after remaining at 6.5 percent in the previous two months. The central bank wants to hold inflation at 5 percent to 6 percent this year.

‘Nearest Future’

Investors will also watch the wording of the central bank’s statement as policy makers last said rates were at an acceptable level for the “nearest future” in July, two months before unexpectedly raising borrowing costs as inflation breached the 6 percent upper limit of the central bank’s target range. Bank Rossii used a reference to rates being adequate for the “coming months” during every meeting last year until July.

“The main question is whether they will repeat the phrase that the current level of rates is acceptable for the nearest future,” Maxim Oreshkin, chief economist for Russia at VTB Capital in Moscow, said by phone Jan. 9. “Beginning in March or April we’re expecting action to ease monetary policy as inflationary pressure eases and economic growth slows.”

Investor Expectations

Three-month borrowing costs may fall 22 basis points, or 0.22 percentage point, in the next three months, according to forward-rate agreements tracked by Bloomberg. That’s down from as high as 38 basis points on Dec. 11, the day after last month’s rates meeting.

The cost to fix floating interest payments in rubles for a year using rate swaps was 7.27 percent today, down from last year’s high of 7.81 percent on July 9, data compiled by Bloomberg show.

Bank Rossii will deliver a rate decrease by the end of the second quarter after holding borrowing costs in the first three months of 2013, a Bloomberg poll showed. The refinancing rate will fall to 8 percent by year-end, a quarter-point above the record low, according to the median estimate of 11 economists in a Bloomberg survey.

President Vladimir Putin, who won re-election to a third term last year, said Dec. 12 that working further to contain price growth remains a top priority and may take precedence over short-term growth. The threat of inflation was ranked alongside low living standards as the second-biggest problem facing the country, according to a Jan. 9 poll published by the state-run All-Russian Center for the Study of Public Opinion.

Slumping Growth

Consumer confidence fell in the fourth quarter to the lowest level in 1 1/2 years as Russians took a more dour view of the economy and their personal finances over the past year, the Federal Statistics Service in Moscow said in a report today.

Economic growth slowed to 2.9 percent in the third quarter compared with a year ago, down from 4.9 percent in the first quarter. The expansion probably decelerated further in the final three months of 2012, with gross domestic product expanding just 2.5 percent, according to the median estimate of 14 economists in a Bloomberg survey.

“The latest industrial production data and our PMIs suggest that the risks to economic growth have strengthened in recent months,” Alexander Morozov, chief economist for Russia at HSBC Holdings Plc, said by phone Jan. 9. “While the central bank shouldn’t change rates now, its statements will increasingly focus on closer attention to the risks of weakening economic growth to prepare for lowering rates throughout the year.”

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