Russia’s central bank kept its key interest rates on hold on Monday, highlighting rising inflationary risks but signalling no early move in coming months.
It also said it was introducing a new one-week rate, a move which will help to tighten its grip on money markets as part of its gradual shift from focusing on the rouble exchange rate to using interest rates as its main tool for targeting inflation.
The central bank, as expected, held its refinancing rate at 8 percent, fixed the one-day repo rate - a de facto ceiling for money-market rates - at 6.25 percent, and its overnight deposit rate at 4 percent.
“We consider the current level of money market rates within the (central bank’s) interest-rate corridor to be appropriate for the coming months,” the central bank said in a statement.
The central bank said it was introducing the new one-week maximum auction deposit rate at 4.75 percent “to reduce volatility in money-market rates and increase the effectiveness of interest-rate policy.”
Maxim Oreshkin, chief economist Russia and CIS at Credit Agricole in Moscow, said the new rate “could be used to maintain money market rates at the centre of the rate corridor if excessive banking reserves arise.”
Liquidity in Russia’s financial system, however, is unlikely to increase in the near term after net capital outflows nearly doubled in the first quarter of 2012 from a year ago to $35.1 billion.
The rouble and one-day interbank lending rates showed no reaction to the central bank’s decision, with rates hovering at 4 percent, as outflows have drained liquidity from money markets created by recent heavy government spending.
“Now when there is still something of a liquidity deficit, the impact of the launch of the new rate could be rather neutral,” said Maria Pomelnikova, an analyst at Raiffeisen Bank in Moscow.
AWAITING INFLATION SPIKE
The central bank warned in the statement that mid-term inflation risks would be boosted by planned increases from July 1 in household utility bills after annual inflation remained at a post-Soviet low of 3.7 percent in March.
The central bank aims to keep year-end inflation below 6 percent, but some economists there may be an overshoot, which explains the central bank’s aversion to easing policy.
“We agree with them that inflation will pick up significantly. It’s only temporarily that it is so low. Our forecast remains 7 percent for the year,” said Alexei Moiseev, head of macroeconomic analysis at VTB Capital, add ing he was glad that cha irman Sergei Ignatyev had ac knowledged the bank might not be able to meet its 5-6 percent target.
Ignatyev said last week it would be difficult to keep inflation in the targeted range after it slowed to a record low of 6.1 percent in 2011.
Russia’s economy is supported by solid internal demand, the central bank said, also noting a rise in industrial output and investment.
“It looks like the central bank’s statement means there will be a ‘status quo’ with rates in coming months,” said Natalia Orlova, chief economist at Alfa Bank in Moscow.
However, Oreshkin at Credit Agricole said low unemployment levels together with growing lending activity and internal demand give the central bank room to hike rates later in the year after keeping them unchanged next month.
Analysts and economists polled by Reuters in late March predicted the central bank would keep key rates unchanged until the end of the third quarter.
The next policy meeting will be held in the first half of May, the bank said.