Russia Will Probably Hold Rates After Surprise Inflation Jump

Russia’s central bank will probably refrain from cutting interest rates for a 14th month after a surprise pickup in consumer-price growth last month hurt its struggle to slow inflation to within its target band.

Bank Rossii will leave the one-week auction rate, its benchmark introduced in September, unchanged at 5.5 percent at a meeting in Moscow today, according to all 24 economists in a Bloomberg survey. The inflation rate unexpectedly rose to 6.3 percent last month, exceeding this year’s target range of 5 percent to 6 percent for a 14th month.

Policy makers led by Elvira Nabiullina, who took over as central bank chairman in June, have kept interest rates steady since September 2012 even as the economy of the world’s largest energy exporter has its worst slowdown in four years. Rising food prices after rain delayed the grain harvest and Russia banned pork imports from Belarus increased the risk of Bank Rossii missing its year-end inflation goal for a second year.

“We remain doubtful that Russian inflation could slow to less than 6 percent by the end of the year, and this is a convincing argument against central bank rate cuts in the coming months,” Natalia Orlova and Dmitry Dolgin, Moscow-based analysts with Alfa Bank, wrote in an e-mailed note yesterday.

The three-month MosPrime rate, which large Moscow banks say they charge one another, may drop 14 basis points, or 0.14 percentage point, in the next three months, according to forward-rate agreements tracked by Bloomberg. The spread is up from a four-month low of 7 basis points on Nov. 5.

Monetary Easing

The ruble has gained 1.8 percent against the dollar in the past three months, the fifth-best performer among 24 emerging-market currencies Bloomberg tracks. It traded little changed at 32.3207 per dollar at 4:42 p.m. in Moscow yesterday.

Monetary easing is continuing in the euro area to aid a recovery after the longest-ever recession. The European Central Bank cut its benchmark interest rate to a record low yesterday after a drop in inflation to the slowest pace in four years.

Countries across eastern Europe, including Hungary and the Czech Republic, have pledged to keep rates low to support their economies. Hungary reduced borrowing costs for a 15th month in October, while Poland held its main rate at a record-low 2.5 percent this week and pledged to keep it unchanged until at least July 2014.

The Czech central bank yesterday approved the first koruna sales in more than a decade to ease monetary policy after inflation slowed to the lowest in 3 1/2 years. It will seek to keep the currency near 27 per euro.

Inflation Targeting

While the Russian central bank’s rate policy will be tied to its inflation target, “it will not be based on current trends, but on how we see the longer-term development of the situation,” Igor Dmitriev, head of Bank Rossii’s monetary policy department, said at a conference in Moscow yesterday.

Policy makers are still discussing the appropriate level for the long-term inflation target, after seeking to reduce consumer-price growth to 4 percent in 2014-2016, he said.

“An important element of inflation targeting is concentrating to the utmost on medium-term forecasts” for economic growth, the state of the financial market and the interbank market, he said.

Russia’s gross domestic product will probably grow at an average pace of 2.5 percent until 2030, Economy Minister Alexei Ulyukayev told reporters in Moscow yesterday, keeping this year’s forecast at 1.8 percent. The economy grew 1.2 percent from a year earlier in the second quarter, the worst result since the last three months of 2009.

“Even the continuing weakness of activity indicators, including the possibility that real GDP failed to grow in seasonally adjusted terms in the third quarter, is now very unlikely to lead to policy easing over the next several months,” Sergei Voloboev and Alexey Pogorelov, analysts at Credit Suisse Group AG, said yesterday in an e-mailed note.

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