Russian CB warns of future hikes as it holds key rate

MOSCOW: Russia’s central bank yesterday warned of possible interest rate hikes ahead if inflation risks rise, as it held its key rate at 11 percent after a fresh oil price drop.

“On the backdrop of yet another oil price slump, monthly consumer price growth rates stabilised at a high level, with a higher risk of accelerated inflation,” the bank said in a statement after its latest board meeting, warning that “should inflation risks amplify, the Bank of Russia cannot rule out a tightening of its monetary policy.”

Authorities have been struggling to revive Russia’s recession-hit economy battered by Western sanctions over Ukraine and low oil prices-and the ruble’s recent woes on the back of a fresh slump for oil have hampered their efforts still further.

The Bank of Russia has been juggling inflation fears against demands from business to cut rates after a mammoth hike to prop up the ruble in December 2014. “The recent weakening of the ruble is putting pro-inflationary pressure and causes inflation expectations to grow, despite a slowdown in annual inflation,” the bank said, predicting that inflation this month would drop to 10 percent, down from 12.9 percent in December.

In its statement the bank said that it estimated annual inflation would drop to under seven percent by January 2017 and reach its target of 4 percent by the end of next year.Russia’s GDP dropped by an estimated 3.7 percent in 2015 and looks set to shrink again this year.—AFP