Rus­sian cen­tral bank holds rates, says tight pol­icy to con­tinue

The Pak Banker - - FRONT PAGE -

MOSCOW: The Rus­sian cen­tral bank left its main lend­ing rate at 11 per­cent on Fri­day, send­ing a rel­a­tively hawk­ish sig­nal about its will­ing­ness to per­sist with mod­er­ately tight mon­e­tary pol­icy de­spite signs of a sta­bi­liz­ing econ­omy.

An­a­lysts had pre­dicted no change in rates given the bank's tough anti-in­fla­tion rhetoric. But most had also ex­pected the bank to soften its rhetoric, given a re­cent up­lift in global oil prices that has buoyed the rou­ble, help­ing to mit­i­gate in­fla­tion con­cerns. The bank's rhetoric re­mained rel­a­tively tough how­ever, giv­ing few grounds to ex­pect im­mi­nent rate cuts.

"To en­able the ac­com­plish­ment of in­fla­tion tar­gets, the Bank of Rus­sia may con­duct its mod­er­ately tight mon­e­tary pol­icy for a more pro­longed time than pre­vi­ously planned," it said in a state­ment.

Ab­sent was a phrase in­serted at the time of its last meet­ing in Jan­uary, which had warned that "the Bank of Rus­sia can­not rule out a tight­en­ing of its mon­e­tary pol­icy".

But con­trary to the ex­pec­ta­tions of some an­a­lysts, the bank did not rein­tro­duce a phrase - re­moved in Jan­uary - hold­ing out the prospect of a rate cut. "De­spite cer­tain sta­bi­liza­tion in fi­nan­cial and com­mod­ity mar­kets and a slow­down in in­fla­tion, in­fla­tion risks re­main high," the bank said.

It nev­er­the­less said in­fla­tion was ex­pected to con­tinue on a down­ward trend, fall­ing below 6 per­cent by March 2017 and reach­ing the bank's 4 per­cent tar­get by the end of 2017.

There might be a tem­po­rary pick-up in in­fla­tion in mid2016, be­cause of a low base ef­fect, it warned.

There were also risks in­fla­tion might miss the end-2017 tar­get, it said, cit­ing un­sta­ble global oil and food prices and un­cer­tain­ties about reg­u­lated prices in Rus­sia and the state of the fed­eral bud­get. The bank pre­dicted the econ­omy would con­tract by 1.3-1.5 per­cent in 2016. But it also struck a pos­i­tive note, say­ing the weaker rou­ble was help­ing sev­eral sec­tors and soft­en­ing the blow of low com­mod­ity prices. "Macroe­co­nomic fun­da­men­tals ... sug­gest a less se­vere down­turn than pre­vi­ously es­ti­mated con­sid­er­ing this level of oil prices," it said.

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