Tuesday, January 15, 2013

Russia holds rate, sees minor risk of economic slowdown

    Russia's central bank held its benchmark refinancing rate steady at 8.25 percent, as expected by most economists, as inflation continues to exceed the bank's target while economic activity is slowing down.
    But the Bank of Russia, which raised its rate by 25 basis points in 2012, said bank lending rates were still relatively high and "the risk of a significant economic slowdown stemming from the tighter monetary conditions are considered minor."
    The central said it would continue to monitor inflation risks, global economic developments and the "consequences of the monetary conditions tightening for the Russian economy," in a statement issued after a meeting of its board of directors.
    Inflation in Russia was estimated at 6.8 percent as of Jan. 9, 2013 from a year earlier while core inflation eased to 5.7 percent in December, the bank said. Data showed headline inflation of 6.6 percent in December and the bank targets inflation of 5-6 percent.
    "The inflation rate staying above the target for a prolonged period of time may affect economic agents' expectations and thus pose inflation risks, despite the absence of any significant demand-pull price pressures," the bank said.
     The central bank said there was a "gradual cooling of economic activity" in November, in line with the previous trend but economic confidence remains positive and labor market conditions together with credit expansion provides support to domestic demand.
     "According to the Bank of Russia estimates, the gross output remains close to its potential level," the bank said.
     Russia's Gross Domestic Product expanded by 0.6 percent in the third quarter from the second for annual growth of 2.9 percent, down from 4.0 percent in the second.


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