Russia unexpectedly raises rates after inflation breached target

Russia’s central bank unexpectedly raised all of its policy rates by a quarter-point after inflation exceeded its target, splitting from policy makers in other major economies focused on bolstering growth.

Monetary-policy makers raised the refinancing rate to 8.25 percent from 8 percent, the first increase since the April 2011 meeting, the central bank in Moscow said in a statement on its website today. The overnight auction-based repurchase rate will rise to 5.5 percent from 5.25 percent and the overnight deposit rate to 4.25 percent from 4 percent, effective tomorrow. Three of 15 economists forecast an increase in the refinancing rate in a Bloomberg survey with the rest predicting no change.

Bank Rossii Chairman Sergey Ignatiev is breaking from policy makers in China, Brazil and India who have lowered interest rates this year to help bolster economic growth. Consumer prices in Russia advanced 6.3 percent from a year earlier as of Sept. 10, above the high end of the central bank’s target range, according to the statement.

“The decision was made based on rising prices and inflation expectations,” Bank Rossii said in the statement.

The ruble extended gains after the decisions, strengthening 0.5 percent against the dollar and the euro. Russia’s ruble bonds due June 2017 fell, lifting the yield eight basis points to 7.57 percent.

Slowing Growth

Growth in the world’s largest energy exporter slowed to 4 percent from a year earlier in the second quarter as China’s cooling expansion and Europe’s debt crisis sapped demand for Russian commodities exports.

Brazil cut its benchmark Selic rate to a record-low 7.5 percent last month, while Chinese Premier Wen Jiabao said slowing inflation in his country offered policy makers room to bolster the economy after signs of weakening growth.

The economic expansion in Russia may cool to less than 3 percent on an annual basis in the second half, down from 4.5 percent in the first six months, as energy exports stagnate, Economy Minister Andrei Belousov told lawmakers in Moscow yesterday.

Growth will slow next year from 2012, according to German Gref, chief executive officer at OAO Sberbank, Russia’s largest lender.

“We’re clearly seeing lower demand and falling prices for our exported goods,” Gref told reporters in Moscow yesterday. “Growth is slowing in China, and we see what’s happening in the euro zone, so I think this is a trend we’ll have to come to terms with.”

Inflation Spike

Consumer prices advanced 5.9 percent from a year earlier in August, the biggest increase this year, as droughts from the U.S. to Russia damaged crops and drove up food prices. Bank Rossii is seeking to hold inflation at 5 percent to 6 percent this year before cutting that range by a half-point in each of the next two years.

President Vladimir Putin, who returned to the Kremlin for a third term in May, has touted last year’s record-low 6.1 percent inflation rate as a major economic success and told investors and foreign leaders at an Asia-Pacific Economic Cooperation summit last week that Russia would continue cutting inflation.

This year’s grain harvest will reach 70 million to 75 million tons, down from 94.2 million tons in 2011 because of drought, the Agriculture Ministry said in August.

Bloomberg News

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