Russia Holds Rates as Nabiullina Looks Past Slowing Economy

Russia’s central bank left its main lending rate unchanged for a 13th month and removed a signal that it will keep monetary policy on pause as inflation dropped into its target range for the first time since August 2012.

Bank Rossii left the one-week auction rate, its benchmark introduced last month, at 5.5 percent at a meeting in Moscow today, the regulator said in a statement on its website. That matched the forecast of all 23 economists in a Bloomberg survey.

Policy makers led by Chairman Elvira Nabiullina said consumer-price growth slowed to 6 percent as of Oct. 7, with the economy showing signs of continued weakness. While removing guidance from its statement that rates were at an appropriate level for the “nearest future,” the central bank said it was waiting for clearer signs that inflation expectations were falling enough to meet medium-term targets.

“The central bank isn’t terribly concerned about the weak pace of growth,” Vladimir Kolychev, chief economist for Russia at VTB Capital in Moscow, said by phone. “Before the central bank starts reducing rates, it needs to see a reduction in inflation expectations.”

The ruble remained little changed against the dollar following the announcement, trading at 32.2800 per U.S. currency as of 6:48 p.m. in Moscow. Russia’s ruble bonds due in February 2027 fell, increasing the yield six basis points, or 0.06 percentage point, to 7.73 percent.

Easing Ahead

The three-month MosPrime rate, which the largest Moscow banks say they charge one another, may decline 17 basis points over the next three months, according to forward-rate agreements tracked by Bloomberg. That’s down from as much as 56 basis points on Aug. 8.

Leaving the key rate unchanged, the central bank placed 500 billion rubles in three-month loans backed by non-marketable assets, the regulator said in a separate website statement. All the funds were placed at a cutoff rate of 5.76 percent while 25 banks submitted bids at yields ranging from the minimum rate of 5.75 percent to 6.65 percent. Demand reached 563 billion rubles.

The central bank last month increased its inflation target for next year to 5 percent, plus or minus 1.5 percentage points, from 4.5 percent, after the government backtracked on a plan to halt all increases in regulated prices for utilities and monopolies such as OAO Russian Railways.

Inflation Goals

Still-elevated expectations for future inflation must come down, even as the pace of economic growth remains low, Nabiullina told lawmakers Oct. 8.

For Russians, inflation is one of the biggest concerns along with housing and utilities, according to a poll published Sept. 18 by the state-run All-Russian Center for the Study of Public Opinion.

“The dynamics of the key macroeconomic indicators suggested that the pace of economic growth remained low,” the regulator said in its statement. “More pronounced downward trends in inflation expectations need to be formed to ensure the achievement of inflation goals in the medium term.”

Bank Rossii is signaling more willingness to reduce rates than after last month’s meeting, according to Alexander Morozov, Moscow-based chief economist for Russia, the Commonwealth of Independent States and Baltic states at HSBC Holdings Plc.

‘More Confident’

“The central bank feels more confident in the inflation trends both for this year and next,” Morozov said by phone. “December remains more likely for a rate cut than November.”

Inflation slowed to 6.1 percent in September from 6.5 percent in August. Core inflation, which excludes volatile costs such as energy, remained at 5.5 percent. Russia’s $2 trillion economy expanded 1.2 percent from a year earlier in the second quarter, its worst showing since a contraction in the last three months of 2009.

The central bank’s emphasis on waiting for “more pronounced” improvements in inflation expectations is the key phrase in today’s policy statement, according to Tatiana Orlova, senior economist at Royal Bank of Scotland Group Plc in London.

“We continue to see a small chance of a 25 basis-point cut in January,” she said by e-mail. “Most likely, the central bank will delay easing until later in 2014, in May or June, when headline inflation will probably drop below its new point target of 5 percent.”

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