Russian President Vladimir Putin said increasing interest rates will “inevitably” affect lending and may curb the country’s economic expansion.
“The growth of interest rates to a level substantially higher than inflation, which inevitably affects lending to the economy and citizens, raises concerns,” Putin said today at a government meeting broadcast on national television.
Russia’s central bank is resisting calls to cut key rates, sparking a “huge argument” with the government over priorities, First Deputy Prime Minister Igor Shuvalov said in a Jan. 18 interview. Bank Rossii left borrowing costs unchanged this month after unexpectedly raising them in September.
The central bank Chairman Sergey Ignatiev, whose term ends in June, said today that Russia will see lower interest rates as inflation decelerates. Consumer price growth may slow to 4 percent in the coming years if the government sticks to budget rules, he said.
Putin has made economic growth a priority for his third term as president. The world’s biggest energy exporter can’t return to its “pre-crisis growth model” and needs investment, the president said today.
Gross domestic product expanded about 3.5 percent in 2012 from a year earlier, according to Economy Ministry estimates, the weakest pace since Putin became prime minister in 1999, barring a contraction in 2009. The government projects 3.6 percent growth this year.
Putin’s comments about lending probably mean the central bank will start cutting interest rates as soon as the second quarter even if inflation accelerates in January, Vladimir Osakovskiy, chief economist at Bank of America Merrill Lynch said by e-mail.
“We expect a cumulative 75-basis point rate cut this year, starting from the second quarter,” Osakovskiy said.
The central bank on Jan. 15 removed a reference to interest rates being adequate, a move that preceded the rate increase in September when Bank Rossii became the biggest emerging-market regulator to increase borrowing costs last year.
The regulator left the refinancing rate at 8.25 percent, while the overnight and one-week repurchase rates used to provide banks with cash stayed at 5.5 percent.
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