Friday, October 5, 2012

Russia keeps rate on hold, warns inflation exceeds target

    The central bank of Russia held its refinancing rate unchanged, warning that inflation continues to rise and there is only a minor risk of economic slowdown from the tight monetary conditions.
    The Bank of Russia, which surprised markets last month by raising its key rate by 25 basis points to 8.25 percent, said higher prices in recent months were mainly due to higher food prices and increases in regulated prices and tariffs.
    "However, the continued increase in the core inflation rate implies that inflation is spreading to other consumer market segments, while, according to the Bank of Russia estimates, significant demand-pull pressures are absent," the bank said after a meeting of its board of directors.
    Inflation rose to an annual rate of 6.6 percent in September, up from 5.9 percent in August, and above the bank's medium-term target of 6.0 percent. Inflation has been rising the last four months.
    The Bank of Russia said data - such as industrial production, investment and consumer demand - pointed to a slowdown in economic activity in August, but employment and confidence have not deteriorated.

    "Labour market conditions together with credit expansion support robust domestic demand," the bank said, adding that output is close to its potential level.
    "There are certain signs of the stabilization of banking credit growth. However, the Bank of Russia judges that currently the risks of a significant economic slowdown stemming from somewhat tighter monetary conditions are minor," the bank said.
    Russia's economy expanded by 4.0 percent in the second quarter, down from a 4.9 percent annual growth rate in the first quarter. 


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