Bloomberg News

Russia Leaves Rates Unchanged on Inflation, Global Economy

June 30, 2011

(Updates with analyst comment in third paragraph, central bank comments starting in sixth.)

June 30 (Bloomberg) -- Russia’s central bank left interest rates unchanged, refraining from monetary tightening for the first time since November as inflation slows and Europe’s debt crisis threatens to sap a rebound in global growth.

Bank Rossii held its refinancing rate at 8.25 percent after two increases this year, the Moscow-based bank said today on its website. That matched the forecasts of 18 of 19 economists in a Bloomberg News survey. The bank left the overnight auction-based repurchase rate and the overnight deposit rate unchanged at 5.5 percent and 3.5 percent and didn’t alter reserve ratios.

“The central bank is first and foremost looking at the external risks, and headline inflation is also slowing down,” Aurelija Augulyte, an emerging-market analyst at Nordea Bank AB in Copenhagen, said in a phone interview. “But, crucially, they still see underlying inflation pressures and I think they’ll remain in a tightening mode.”

The central bank has been raising interest rates and reserve requirements every month since December to soak up excess cash and combat the fastest price growth among the so- called BRIC countries. Policy makers are predicting a slowdown in inflation in the second half, while also seeking to protect economic growth as the global recovery appears to stumble.

‘Appropriate’ Rates

The inflation rate was at 9.4 percent on June 27 from a year earlier, the lowest in 2011, the central bank said today, adding that rates are “appropriate” for the coming months.

“This decision was based on the assessment of inflation risks and risks to the sustainability of economic growth,” it said in the statement, citing uncertainty over the development of the “external economic situation.”

The ruble climbed to the strongest level in more than two weeks against the U.S. currency, advancing for a third day at the 5 p.m. close in Moscow before the rate decision. Russia’s currency gained 0.3 percent to 27.90 per dollar, extending its advance this quarter to 1.9 percent.

Slower growth of retail deposits signals a drop in the saving rate, which may stoke inflation risks, Bank Rossii said.

Consumer Spending

Consumer spending and credit growth remain a risk to price growth, said Augulyte, who expects the central bank to lift the refinancing rate by another quarter-point in 2011 and also predicts three more increases in the deposit rate this year.

Consumer prices will rise no more than 5.2 percent in the first half and another 0.3 percent to 0.4 percent in the third quarter, Alexei Ulyukayev, a Bank Rossii first deputy chairman, said June 17. The central bank is “comfortable” with current interest rates and “very likely won’t need to change them” in the coming months, he told the Vedomosti newspaper in an interview published June 6.

The central bank is seeking to keep inflation from cutting into consumer incomes before parliamentary elections in December and a presidential vote early next year.

Consumer prices were unchanged for two weeks this month, failing to grow for the first time since May last year. Prices rose 9.6 percent in May from a year earlier, matching a 19-month high. Chairman Sergey Ignatiev is targeting inflation of between 6 percent and 7 percent, the lowest level since the Soviet Union collapsed in 1991.

Keeping Up

Russia’s economy should expand at least 8 percent annually within five years to keep up with other major emerging economies, President Dmitry Medvedev said in January. Russia’s economy grew 4.1 percent in the first quarter from a year earlier, compared with 4.5 percent in the previous three months.

That goal has come under threat as Europe’s debt crisis imperils a global recovery. The U.S. Federal Reserve lowered its growth forecast for the world’s largest economy earlier this month. The slowdown threatens to erode demand for Russia’s commodity exports.

“There’s been alarming news from Europe, from the U.S., from Japan,” Elena Matrosova, a Moscow-based economist at BDO International, a financial adviser that lists the central bank among its clients, said yesterday by e-mail. “That’s where the primary risks to the Russian economy are coming from.”

The central bank began lifting borrowing costs in December after pushing the refinancing rate to a record low of 7.75 percent. Bank Rossii raised all of its key rates in February and April and also raised the deposit rate, used to absorb liquidity, a further two times in December and May. It raised banks’ reserve requirements three times this year.

Slowing money supply growth will also help rein in inflation, the bank said in today’s statement.

Money held on correspondent accounts and deposits at the central bank, a key indicator of liquidity, has averaged 798 billion rubles ($28.6 billion) this month, down from 1.4 trillion rubles in January, Bloomberg data show.

--With assistance from Zoya Shilova in Moscow and Maria Levitov in London. Editors: Paul Abelsky, Andrew Langley.

To contact the reporters on this story: Scott Rose in Moscow at; Agnes Lovasz in London at

To contact the editor responsible for this story: Balazs Penz at

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