Russia Holds Rates as Ignatiev Lays Ground for Heir to Ease

Russia’s central bank left its main interest rates unchanged at Sergey Ignatiev’s final meeting as chairman, signaling that his successor Elvira Nabiullina may have grounds to cut once inflation begins to slow.

The refinancing rate will remain at 8.25 percent for a ninth month, the central bank in Moscow said in a statement on its website today. That matched the prediction of 22 of 26 economists in a Bloomberg survey, with four forecasting a quarter-point cut. Some longer-term borrowing costs were cut for a third month, with the key lending and deposit rates kept unchanged.

By refraining from cuts this month, Ignatiev is maintaining his stance that Bank Rossii will ease monetary policy once inflation is clearly slowing. Consumer-price growth may drop into this year’s target range in the second half, while risks to growth remain from weak investment and a slow recovery in demand on export markets, policy makers said today in the statement.

“All of the comments are preparing for a change in monetary policy,” Julia Tsepliaeva, head of research for BNP Paribas SA in Moscow, said by phone. “Ignatiev’s verbal interventions have prepared a basis for easing monetary policy, which will now be overseen by Nabiullina.”

The ruble pared losses against the dollar to trade 0.4 percent weaker at 32.2850 as of 12:53 p.m. The Micex Index of 50 stocks maintained its advance of 0.5 percent to 1,350.86.

Conflicting Data

While Russia’s economic data have signaled continued weak growth, the labor market and lending have helped support consumer demand, the central bank said today.

Ignatiev, 65, said in a speech last week that the June decision “won’t be simple” because of conflicting economic signs, including his forecast that inflation would decelerate and may fall back into the target range of 5 percent to 6 percent in September or October.

President Vladimir Putin picked Nabiullina, his top economic aide and a former economy minister, to take the job Ignatiev has held since 2002. Ignatiev said he accepted her offer to stay on at Bank Rossii as an adviser after the June 24 handover.

Policy makers began cutting the longer-tenor rates in April and then again in May. This month they only cut rates for operations of at least half a year, including on loans backed by non-marketable assets, gold, and one-year repurchase agreements.

Little Impact

“The central bank cut the rates that have the least possible effect on conditions on the money market and in the economy,” Maxim Oreshkin, chief economist for Russia at VTB Capital in Moscow, said by phone.

The three-month MosPrime rate, which big Moscow banks say they charge one another, may fall 9 basis points, or 0.09 percentage point, over the next three months, according to forward-rate agreements tracked by Bloomberg. The gap was as high as 49 basis points in May.

The overnight and one-week repo rates, the main tools used to provide lenders with cash, will drop by half a point to 5 percent by the end of the third quarter and then remain on hold to the end of the year, according to the median estimate of 12 economists in a Bloomberg survey.

‘Negative Shocks’

Consumer-price growth held at 7.4 percent from a year earlier as of June 3, maintaining the pace in May that was the highest in 21 months. The rate is mostly driven by food costs and some regulated prices, according to the statement. Given the currently monetary policy and barring “negative shocks” on the food market, inflation should ease to the target range in the second half, the central bank said.

“While the central bank kept the three key policy rates unchanged, it has clearly started to recognize in a more explicit manner the continuing weakness of the economy,” said Ivan Tchakarov, chief economist for Russia at Renaissance Capital in Moscow. “The arrival of Nabiullina should change the policy bias at the central bank to a more accommodating position.”

Before it's here, it's on the Bloomberg Terminal.