Russia spurns rate-cut calls as inflation tops economic woes

Assessing Risks

“The decision was made based on an assessment of inflationary risks and the prospects for economic growth,” the central bank said in the statement. Moving the longer-term rates closer to the main policy tools will “strengthen the effectiveness of the interest rate channel’s transmission mechanism for monetary policy.”

Bank Rossii is targeting a range of 5% to 6% for consumer-price growth this year after overshooting the same goal in 2012 to finish at 6.6%. Inflation will gradually slow this year and is “likely” to return to the target range by year-end, Bank Rossii said in a quarterly report on monetary policy.

Still, Ignatiev called April’s reductions a “first decision” toward easing. Bank Rossii will wait to see a sustained slowdown in inflation before cutting the main borrowing costs, he said. The decreases applied to loans representing about one-fifth of the central bank’s refinancing operations, according to Credit Suisse Group AG.

‘Dovish’ Turn

“We believe that the decision to lower longer-term rates likely marks the start of a more dovish stance on the part of the monetary authorities, which may lead to further interest rate decreases this year to support growth,” Yaroslav Lissovolik, Moscow-based head of research at Deutsche Bank AG, said in an e-mailed note.

Inflation expectations among the public “fell significantly” since December, the central bank said yesterday, citing a survey of 2,000 people conducted March 25-April 1. Even so, consumer prices advanced 7.2% in April from a year earlier, faster than March’s 7% increase.

Policy makers’ assessment of the risks to growth and from inflation “looks like a copy-paste from April,” Dmitry Polevoy, chief economist for Russia at ING Groep NV, said in a note.

“The central bank sticks to its guns, resisting pressure from outside,” he said. “No change in the policy statement and the unchanged refinancing rate, which the central bank uses as a signaling tool for further policy moves, might indicate a chance for a similar outcome in June.”

Bloomberg News

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