Bloomberg News

Russian Job Gains Limit Scope for Monetary Easing, Ignatiev Says

April 03, 2013

Russia’s central bank left its main policy rates unchanged yesterday because unemployment near the lowest in 20 years added to accelerating inflation to outweigh concern over a slowing economy, Chairman Sergey Ignatiev said.

“Despite the noticeable slowdown in economic growth, the level of unemployment remains extremely low,” Ignatiev, who steps down in June, said at a banking conference in Moscow today. “Conditions on the labor market remain fairly tight, which doesn’t suggest a need for softening monetary policy.”

Policy makers left the benchmark refinancing rate at 8.25 percent for a seventh month, while cutting some borrowing costs on less frequently used credit instruments. Bank Rossii has been sparring with the government, which says monetary conditions are stifling growth. The economy expanded 2.1 percent in the fourth quarter from a year earlier, the slowest pace since a recession in 2009.

Ignatiev said he was “seriously concerned” with the deceleration of growth, which he said continued into the start of this year with a 1.5 percent drop in industrial production in January and February from a year earlier. He attributed the slowdown to demographics, the poor state of infrastructure and a weak investment climate.

The ruble weakened 0.7 percent to 31.5395 per dollar by 2:53 p.m. in Moscow, sliding for a third day.

The unemployment rate, which dropped to 5 percent in September, the lowest in about 20 years, was 5.3 percent in January and February when adjusted for seasonality, Ignatiev said.

Inflation Outlook

The central bank still expects to contain inflation below 6 percent, the top of its target range, Ignatiev said, adding that the rate was 7.2 percent as of March 25. A drop in grain prices that began in February and will probably continue for the coming months is an important factor, he said.

The annual rate of consumer-price growth surged to 7.3 percent in February from 6.6 percent in December, which Ignatiev said was primarily a result of “temporary factors” including higher excise taxes on goods including alcohol and a surge in grain prices.

“We still intend to achieve a reduction in inflation by the end of 2013 to a level of no more than 6 percent,” he said. Despite the fact that short-term factors including the harvest are beyond Bank Rossii’s control, the task is “entirely realistic,” he said.

Policy makers yesterday also left the overnight and one- week repurchase auction rates and 5.5 percent and the fixed overnight repo rate at 6.5 percent.

Banks use the two rates to access “the main volume of” liquidity, Ignatiev said. Adjusted for “expected inflation, the real value of these rates is close to zero,” he said.

Easing conditions on loans backed with gold and non-market collateral as well as some longer-term repurchase operations by a quarter point will make it cheaper for banks to get liquidity, Ignatiev said.

To contact the reporters on this story: Scott Rose in Moscow at; Olga Tanas in Moscow at

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

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