Bloomberg News

Russia’s Ignatiev Sees Biggest Dilemma of Central Bank Stint

April 03, 2013

Russia’s central bank is facing its biggest monetary-policy dilemma in 11 years as “contradictory” economic data complicate the task of setting interest rates, Chairman Sergey Ignatiev said.

While Ignatiev told a Moscow banking conference today that he’s “seriously concerned” by slower economic expansion, he said policy makers left their main interest rates unchanged yesterday because unemployment near a two-decade low added to quicker inflation to outweigh concern over the pace of growth.

“Despite the noticeable slowdown in economic growth, the level of unemployment remains extremely low,” said Ignatiev, who steps down from the role he took on in 2002 in June. “Conditions on the labor market remain fairly tight, which doesn’t suggest a need for softening monetary policy.”

The central bank left the benchmark refinancing rate at 8.25 percent for a seventh month this week, while cutting the rates of less frequently used credit instruments. The government has warned that borrowing costs are choking the economy, which expanded 2.1 percent from a year earlier in the fourth quarter, the slowest pace since a 2009 recession.

Ruble Plunge

The ruble dropped 0.9 percent against the dollar to 31.6005 by 7:16 p.m. in Moscow, the worst performance among 31 major currencies Bloomberg tracks. The Micex Index fell 0.2 percent to 1,427.94 by the close in Moscow, the lowest since March 27.

The economy, which is being hampered by demographics, the poor state of infrastructure and a weak investment climate, is continuing to lose steam, with industrial production shrinking 1.5 percent from a year earlier in January and February, Ignatiev said. Unemployment (RUUER), which declined to 5 percent in September, the lowest in about 20 years, was 5.3 percent in the first two months of 2013 when adjusted for seasonality, he said.

The central bank plans to keep inflation within 6 percent, the top of its target range, according to Ignatiev, who attributed a surge in the rate to 7.3 percent in February from 6.6 percent in December to temporary factors such as higher excise taxes on alcohol and a jump 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, calling the task “entirely realistic.”

Ignatiev said later that interest rates may be cut before inflation decelerates to within the central bank’s target range, without providing figures.

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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