Russia pauses rate increases as risk of downturn brushed off

Selling Grain

Prime Minister Dmitry Medvedev said at a government meeting yesterday that the state should begin selling grain from stockpiles to stabilize supplies on the domestic market. The decision is attempting to blunt the effect of an “extremely meager harvest” in Russia, said Jenia Ustinova, an analyst at Eurasia Group in Washington.

“The government is definitely grappling with how to best rein in inflation,” she said by e-mail. “The decision to start grain interventions is probably at least in part linked to that effort.”

The central bank’s bias toward tighter monetary policy contradicts their acknowledgment that consumer-price growth is driven by food and regulated tariffs, said Vladimir Miklashevsky, a Helsinki-based economist at Danske Bank A/S.

Political Pressure

“Bank Rossii is indicating they are ready to hike again during the fourth quarter,” he said in an e-mailed response to questions. “They also realize true reasons for inflation and its non-monetary character, but Bank Rossii is under political pressure to act.”

The world’s largest energy exporter will probably grow 3.5 percent this year, less than the 4.3 percent pace in the previous two years, according to the Economy Ministry. Retail sales, a measure of the household consumption that accounts for about half the Russian economy, advanced 4.3 percent in August, the weakest level in 29 months.

“We’re seeing a slowdown, not just in agriculture, but also in consumption and investment,” Anton Struchenevsky, an economist at OAO Sberbank’s investment banking unit in Moscow, said by telephone. “The lack of monetary factors of inflation and slowing growth created the conditions for leaving rates.”

Inflation Target

Bank Rossii is now targeting an inflation range of 5 percent to 6 percent for next year, the same as for 2012 and a half-point higher than the earlier target, according to a medium-term monetary-policy strategy published yesterday. Policy makers will seek to contain consumer-price growth at 4 percent to 5 percent in 2014 and 2015.

Central bank First Deputy Chairman Alexei Ulyukayev said Oct. 2 that inflation risks remain greater than the threat of an economic slowdown.

“The central bank roughly knew what inflation would be in September, so it raised rates,” said Julia Tsepliaeva, head of research at BNP Paribas in Moscow, said by telephone.“That was three weeks ago, and raising again after just three weeks would be foolish.”

Bloomberg News

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