Russia Holds Rates 11th Month as Inflation Lingers Above Target

Russia left its main lending rates
unchanged for an 11th month with inflation above target while
signaling increased concern about economic growth.

Bank Rossii kept the refinancing rate at 8.25 percent at a
meeting in Moscow today, the regulator said on its website. That
matched forecasts by 12 of 20 economists in a Bloomberg survey,
with eight predicting a quarter-point cut. The main lending and
deposit rates were also left unchanged.

Elvira Nabiullina, 49, who took over as central bank
chairman in June, is deferring rate reductions as the ruble’s
six-month slide against the dollar threatens to spill over into
inflation pressures. Price growth decelerated in July to an
eight-month low of 6.5 percent from a year earlier and remained
at that level as of Aug. 5, the central bank said, adding the
economy is operating “somewhat below” its potential.

“The central bank’s statement has generally become more
dovish,” Dmitry Polevoy, chief economist for Russia at ING
Groep NV in Moscow, said by phone. “In the past, the central
bank noted continued risks of an economic slowdown, while now
it’s saying significant risks.”

Bank Rossii reiterated that inflation will probably drop to
within its target range of 5 percent to 6 percent by year-end
under current monetary policy and barring external food shocks.
Policy makers also said consumer-price growth would continue to
slow in 2014.

Surprise Deceleration

Gross domestic product expanded 1.2 percent in the second
quarter from a year earlier, down from 1.6 percent in the first
quarter, the Federal Statistics Service in Moscow said in a
report today. That missed all 19 estimates in a Bloomberg
survey, which had a median estimate of 2 percent growth.

The ruble pared losses after the decision before weakening
0.2 percent against the dollar to 32.8975 as of 4:04 p.m. in
Moscow. Russia’s ruble-denominated debt due February 2027 fell
for the first time in three days, increasing the yield five
basis points, or 0.05 percentage point, to 7.7 percent.

“Achieving medium-term inflation targets will also require
a strengthening in the positive trends in inflation
expectations,” policy makers said today.

Unemployment has “increased somewhat” in recent months as
industrial output remains low and investment continues to
contract, according to the statement.

The euro-area recession and slower growth in China have
weighed on Russia’s $1.9 trillion economy through weaker demand
for exported commodities.

New Auction

While keeping its main rates unchanged at last month’s
meeting, policy makers announced a new one-year auction, with a
rate tied to the one-week auction-based repurchase rate. Banks
took 306.8 billion rubles ($9.3 billion), or 61 percent of the
offered 500 billion rubles, at the minimum rate of 5.75 percent.

The central bank didn’t comment on the new auction in
today’s statement or announce plans to hold another.

President Vladimir Putin’s government last month approved a
plan to stimulate the economy, including measures to reduce the
cost of loans to small and medium-sized businesses. Nabiullina
helped draft the measures as Putin’s chief economic aide before
moving to the central bank.

While reducing inflation is the “main criterion” to bring
down loan costs, it’s not enough, Nabiullina said in a meeting
with Putin on July 24. Consumer-price growth may slow to 6.4
percent in August, the Economy Ministry said in an e-mailed
report today.

Easing Ahead

Economists projected one quarter-point cut to the overnight
auction-based repurchase rate in the third quarter, followed by
another in the final three months of the year, according to a
Bloomberg survey.

“Inflation has slowed since the last meeting to just 6.5
percent from 6.6 percent, while the ruble remains under
pressure,” Dmitry Dorofeev, a trader and analyst at BCS
Financial Group in Moscow, said by e-mail. “That’s why the
central bank continues to remain in a waiting mode even as
business activity in Russia slows.”

To contact the reporters on this story:
Scott Rose in Moscow at;
Olga Tanas in Moscow at

To contact the editor responsible for this story:
Balazs Penz at

Clarida on Europe's Economy, Investment Strategy

Aug. 9 (Bloomberg) — Richard Clarida, global strategic adviser at Pacific Investment Management Co., talks about Europe’s economy, U.S. relations with Russia and investment strategy.
Clarida speaks with Tom Keene, Alix Steel and Scarlet Fu on Bloomberg Television’s “Surveillance.” Nick Thompson, editor of New Yorker Magazine Inc.’s and a Bloomberg News contributor, also speaks. (Source: Bloomberg)

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