Russia Seen Delaying Rate Cut With Inflation Above Target

Russia’s central bank will probably leave its main lending rates unchanged for an 11th month as inflation remains above target.

Bank Rossii will keep the refinancing rate at 8.25 percent at tomorrow’s meeting in Moscow, on hold since a quarter-point increase in September, according to 12 of 20 economists in a Bloomberg survey. Eight forecast a cut to 8 percent, compared with seven in July and four in June. The main lending and deposit rates will also be unchanged, two separate surveys show.

Elvira Nabiullina, who took over as central bank chairman in June, is deferring rate reductions as policy makers evaluate the effects of the ruble’s depreciation. The inflation rate fell to an eight-month low of 6.5 percent in July, remaining above Bank Rossii’s target for an 11th month.

“We’re still far from the 6 percent goal for the end of the year,” Vladimir Pantyushin, chief economist for Russia at Barclays Plc’s investment banking unit in Moscow, said by phone yesterday. “The central bank will play it safe and wait another month. Inflation will probably slow further in August, so they could make their move at the September meeting.”

The three-month MosPrime rate, which large Moscow banks say they charge one another, may drop 51 basis points, or 0.51 percentage point, in the next three months, according to forward-rate agreements tracked by Bloomberg. The cost to fix a floating rate for ruble loans for a year using interest-rate swaps is 6.53 percent, 34 basis points lower than July 11, the day before Bank Rossii’s last meeting.

Ruble Weakens

The ruble has weakened 5.6 percent against the dollar in the past three months, according to data compiled by Bloomberg. A weaker currency may boost import prices. The ruble appreciated 0.1 percent to 32.9355 as of 5:29 p.m. in Moscow.

Russia’s trade surplus widened 8.8 percent in June from a year earlier after narrowing 8.1 percent the previous month, according to customs office data. In the first half of the year, the surplus contracted 10.5 percent from a year earlier.

The central bank said after its July meeting, the first led by Nabiullina, that policy makers see inflation falling to within the target band this year given their current monetary policy and barring external food-price shocks. The regulator also announced a new one-year debt auction, with a rate tied to the one-week auction-based repurchase rate.

Economists project one quarter-point cut to the overnight auction-based repurchase rate, now at 5.5 percent, in the third quarter, followed by another in the final three months of the year, according to a Bloomberg survey.

Government Measures

President Vladimir Putin’s government last month approved a plan to stimulate the economy, including through measures to reduce the cost of loans to small and medium-sized businesses. Nabiullina helped draft the measures as Putin’s chief economic aide before moving to the central bank.

The euro-area recession and slower growth in China have weighed on Russia’s $1.9 trillion economy through weaker demand for exported commodities. The expansion in the second quarter picked up to 2 percent from a year earlier, compared with 1.6 percent in the first quarter and 3.4 percent for 2012, according to the median estimate of 18 economists in a Bloomberg survey.

“The economy hovering on the edge of recession and a benign inflation outlook are powerful arguments in favor of policy rate cuts in August, despite a still-weak currency,” Alexander Morozov, chief economist for Russia at HSBC Holdings Plc, said in a report yesterday.

The year may end with inflation at 6.5 percent, according to Evgeny Nadorshin, chief economist at AFK Sistema, a Moscow-based investment company with assets ranging from telecommunications to oil. Some increases in costs for communal services were higher than he expected, Nadorshin said, adding that these were also delayed in some regions holdings elections.

“The weakening ruble will also have an effect on inflation expectations and consumer-price growth,” he said by phone yesterday. “The central bank missed its chance to influence economic activity through a short-term rate cut this year.”

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