Bloomberg News

Russia Holds Interest Rates as Inflation Pressures Increase

April 09, 2012

Russia’s central bank refrained from cutting interest rates for a fourth month after signaling that “medium-term” inflation risks are increasing.

Bank Rossii left the refinancing rate at 8 percent, as predicted by 21 of 22 economists in a Bloomberg News survey. The overnight auction-based repurchase rate was kept at 5.25 percent and the overnight deposit rate will remain at 4 percent.

The world’s largest energy exporter is keeping borrowing costs unchanged even after the inflation rate fell to the lowest in two decades. Current market interest rates are “acceptable for the coming months,” Bank Rossii said. China may ease policy to boost faltering growth and Brazil has cut its benchmark rate five times since August.

“Medium-term inflation risks are rising because of uncertainty over the impact on consumer prices of the planned increase in most of the regulated prices and tariffs in July,” the central bank said in the statement.

Consumer prices rose 3.7 percent from year earlier in March and core inflation, which excludes volatile costs such as energy, decelerated to 5.5 percent, the regulator said today.

Russia’s benchmark 30-stock Micex Index reversed gains, dropping 0.4 percent to 1,491.45 in Moscow after the announcement. The gauge had risen as much as 0.6 percent before the decision. The ruble remained little changed at 29.63 against the dollar and was steady at 38.7080 versus the euro.

Watching Unemployment

While it’s “premature” to say Russia’s labor market is overheating, policy makers are watching the unemployment rate in steering policy, Bank Rossii Chairman Sergey Ignatiev said.

“Unemployment in seasonally adjusted terms is close to all-time lows,” Vladimir Osakovskiy, chief economist at Bank of America Merill Lynch in Moscow, said in a telephone interview April 6. “The last time they had this level of unemployment was during the red-hot economy of 2007 and 2008.”

Unemployment fell to 6.5 percent in February from 6.6 percent the month before, the lowest level for February since at least 1999, according to data compiled by Bloomberg. In seasonally adjusted terms, the jobless rate reached 5.8 percent and was only lower in the second quarter of 2008, when Russia’s economy was seen as “overheating,” according to Ignatiev.

The task of containing consumer-price growth within the target range of between 5 percent and 6 percent in 2012 “won’t be very easy,” after last year’s record-low 6.1 percent, Ignatiev said April 5.

Ten of 19 analysts surveyed by Bloomberg forecast a reduction of at least a quarter-point by the end of the year, while three predicted the year-end rate would be higher than the current 8 percent.

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


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