Russia Unexpectedly Cuts Refinancing Rate to Shield Growth
December 27, 2011, 7:15 AM ESTBy Scott Rose
(Updates with economist comments from fourth paragraph.)
Dec. 23 (Bloomberg) -- Russia unexpectedly cut its benchmark rate as policy makers seek to shield the world’s biggest energy exporter from a slumping global economy.
The refinancing rate was cut to 8 percent from 8.25 percent, effective Dec. 26, Bank Rossii said in a statement on its website today. The move was forecast by two of 22 economists in a Bloomberg survey. The difference between the main lending and deposit rates was reduced a quarter-point to 1.25 percentage points, the narrowest ever.
Nations from Brazil to Indonesia are easing borrowing costs to manage the fallout from a slowdown in China and Europe’s deepening debt crisis. Prime Minister Vladimir Putin, who will run for president next year, is seeking annual expansion of between 6 percent and 7 percent while capping inflation at the lowest year-end level in two decades.
The regulator is “giving the signal that the monetary- easing cycle began,” Julia Tsepliaeva, head of research at BNP Paribas in Moscow, said by e-mail. “However, inflation risks associated with eased fiscal policy and election populism remain high.”
Deposit, Repo Rates
The overnight auction-based repurchase rate, the regulator’s main lending tool, will stay at 5.25 percent and the overnight deposit rate, used to withdraw cash, will increase a quarter-point to 4 percent. The moves are “neutral” to monetary policy while helping prevent volatility of interbank lending costs, according to Bank Rossii.
“The decision was made based on the estimation of inflation risks and risks to the stability of economic growth, including from continued foreign economic instability,” the central bank said in the statement.
The ruble extended gains against the dollar, strengthening 0.9 percent to 31.055 by 12:20 p.m. in Moscow. The Micex Index of 30 stocks reversed earlier gains and was was 0.3 percent lower at 1,381.46.
Investors are betting interest rates will remain unchanged over the next three months, compared with expectations of as much as 21 basis points of increases on Nov. 24, according to forward-rate agreements tracked by Bloomberg.
“Given the fact that” the repo rate “is the most relevant policy rate in the current times of tight liquidity conditions, we interpret the decision as an attempt from the central bank to deliver the most cautious of easings possible,” Ivan Tchakarov, chief economist at Renaissance Capital in Moscow, said by e-mail.
Putin’s Return
Putin, who wants to return to the Kremlin in March elections, needs to solidify voter backing after his ruling United Russia party won less than half of the vote in a Dec. 4 parliamentary poll and thousands of people joined protests in Moscow after allegations of ballot-box stuffing.
Job gains and inflation at the lowest since August 2010 are bolstering purchasing power and helping shelter the economy from a slowdown in Europe. Gross domestic product may expand 4.5 percent this year and 3.7 percent in 2012, according to the Economy Ministry.
Even so, more than half of Russians still see the inflation level as “very high,” a poll showed last month.
Consumer-price growth slowed to 6.4 percent as of Dec. 19 from a year earlier, compared with 6.8 percent in November, Bank Rossii said. Central bank Chairman Sergey Ignatiev said yesterday he was “surprised” by the slow inflation even as the ruble’s recent slump may affect price growth in Russia next month.
‘Plenty of Flexibility’
“The central bank continues to maintain the key message that the current level of money-market rates strikes the right balance between inflation and growth risks,” Tchakarov said. The bank has “plenty of flexibility to change course depending on incoming economic data.”
In September, Bank Rossii lifted the deposit rate by a quarter point while cutting the overnight auction-based repurchase rate by the same amount. That narrowed the so-called rate corridor in which money-market costs fluctuate to 1.5 percentage points from 2 percentage points.
The MosPrime overnight rate, an average of rates offered by some of Moscow’s largest lenders to one another, fell to 6.34 percent today after surging yesterday to 6.46 percent, the most since December 2009.
--With assistance from Zoya Shilova and Denis Maternovsky in Moscow. Editors: Paul Abelsky, Andrew Langley
To contact the reporter on this story: Scott Rose in Moscow at rrose10@bloomberg.net
To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net
