Russia Holds Key Rate on Inflation Risks as Growth Stalls

Bloomberg: Russia’s central bank refrained from cutting interest rates after a surprise pickup in consumer-price growth in October threatened efforts to hold inflation to within this year’s target range.

The one-week auction rate, the benchmark introduced two months ago, was kept at 5.5 percent at a meeting today, the central bank in Moscow said in a website statement. That matched the forecasts of all 24 economists in a Bloomberg survey.

Faced with the first acceleration in inflation in five months, policy makers led by Elvira Nabiullina are extending their interest-rate pause even as the economy of the world’s largest energy exporter stalls amid its worst slowdown in four years. The reluctance leaves Russia standing apart from central banks in Europe as countries from Hungary to the Czech Republic move to keep borrowing costs low to support their economies.

The bank “will continue to monitor inflation risks and the downside risks to economic growth,” policy makers said in the statement. “In making monetary policy decisions the Bank of Russia will be guided by the inflation goals and inflation forecast as well as economic growth prospects.”

The ruble maintained losses against the dollar after the announcement, trading 0.4 percent weaker at 32.5690 as of 1:32 p.m. in Moscow. The Micex Index of 50 stocks retreated 0.9 percent to 1,496.11.

Russia’s inflation rate unexpectedly increased to 6.3 percent last month, exceeding this year’s target range of 5 percent to 6 percent for a 14th month. Rising food prices after rain delayed the grain harvest and Russia banned pork imports from Belarus increased the risk of the central bank missing its year-end inflation goal for a second year.

‘Convincing Argument’

“We remain doubtful that Russian inflation could slow to less than 6 percent by the end of the year, and this is a convincing argument against central bank rate cuts in the coming months,” Natalia Orlova and Dmitry Dolgin, Moscow-based analysts with Alfa Bank, wrote in an e-mailed note yesterday.

Gross domestic product will probably grow at an average pace of 2.5 percent until 2030, Economy Minister Alexei Ulyukayev told reporters in Moscow yesterday, keeping this year’s forecast at 1.8 percent. The economy grew 1.2 percent from a year earlier in the second quarter, the worst result since the last three months of 2009.

Russia’s monetary stance provides a counterpoint to moves by other central banks to relax policy. Hungary reduced borrowing costs for a 15th month in October, while Poland held its main rate at a record low this week and pledged to keep it unchanged until at least July 2014.

ECB, Czech

The European Central Bank cut its benchmark interest rate to a record low yesterday after a drop in inflation to the slowest pace in four years. The Czech monetary authority yesterday approved the first koruna sales in more than a decade to ease policy.

While the Russian central bank’s rate policy will be tied to its inflation target, “it will not be based on current trends, but on how we see the longer-term development of the situation,” Igor Dmitriev, head of Bank Rossii’s monetary-policy department, said at a conference in Moscow yesterday.

Policy makers are still discussing the appropriate level for the long-term inflation target, after seeking to reduce consumer-price growth to 4 percent in 2014-2016, he said.

“An important element of inflation targeting is concentrating to the utmost on medium-term forecasts” for economic growth, the state of the financial market and the interbank market, he said.

reporters on this story: Ott Ummelas in Tallinn