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Russia central bank keeps main interest rate unchanged

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(Globalpost/GlobalPost)

The Russian central bank kept its main refinancing rate unchanged at 8.25 percent on Tuesday but appeared hint at future rate cuts amid pressure from policymakers for a action to boost economic activity.

The Bank Rossii appeared to leave the door open for a cut in the future by saying inflation, currently high at 7.2 percent, should return to within its target range in the second half of the year.

While keeping the benchmark rate unchanged, it also snipped several more minor rates by 25 basis points including longer-term rates for liquidity operations in a bid to push forward faltering activity.

The bank gave a downbeat assessment of Russia's economic growth prospects, saying that recent data pointed towards a continued slowing of growth and risks of a further slowdown.

"The decision (to hold the headline rate) has been taken against the background of an estimation of the inflation risks and the prospects for economic growth," the bank said.

"The Bank Rossii will continue to monitor the inflation risks and the risks of economic slowdown," the bank said, adding that its next monetary policy meeting was scheduled for the first half of May.

The bank cut its three-month refinancing rate to 6.75 percent from 7.00 percent and for 12 months to 7.75 from 8.00 percent. But crucially the rates for its most widely-used one day and one week operations were unchanged at 5.50 percent.

Capital Economics said in a note to clients that the language of the statement reflected the extent to which Russia's economic policymakers were "in a bind" as they sought to balance inflation worries with concerns about sluggish growth.

But with inflation forecast to fall "interest rates are likely to be lowered over the coming months, and we are sticking to our forecast for a total of 75 basis points of cuts to key rates by the end of this year," Capital Economics said.

The decision comes as the central bank goes through a shake-up ahead of the arrival of Kremlin economic advisor Elvira Nabiullina in the summer as its new chief to replace the long-serving incumbent Sergei Ignatyev.

While respected as an economist who served as a capable economy minister to 2012, Nabiullina is a close ally of President Vladimir Putin and some analysts have expressed concern that the Kremlin will have a greater influence over the central bank.

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http://www.globalpost.com/dispatch/news/afp/130402/russia-central-bank-keeps-main-interest-rate-unchanged-1