Wednesday, May 15, 2013

Russia holds rate, sees slowdown risk, inflation on target

    Russia's central bank held its policy rate steady but again trimmed some of its long-term rates and said there was a risk of further economic slowdown while inflation was expected to hit the bank's target in the second half of this year.
    The Bank of Russia, which raised its key refinancing rate by 25 basis points in September 2012 to the current 8.25 percent, cut the rates on some of its standing facilities by 25 basis points, as in April, to align the cost of obtaining liquidity from the central bank with its main operations,  strengthening the transmission mechanism of monetary policy.
    Russia's headline inflation rate rose to 7.2 percent in April, up from 7.0 percent in March,  well above the central bank's target range of 5-6 percent. The central bank warned that if inflation remains above its target for a prolonged period, it would affect people's expectations and "thus pose inflation risks, in particular taking into account the planned increases in the natural monopolies' tariffs."
    "However, according to the Bank of Russia projections based on the assumptions of maintaining the current monetary policy stance and absence of adverse food price shocks, the rate of inflation will return to the target range in the second half of 2013," the bank said.
    Russia's economy has been slowing in recent months and Gross Domestic Product rose by 1.8 percent in the fourth quarter of 2012 from the third for annual growth of 2.1 percent, the weakest rate since the fourth quarter of 2009. For the full 2012 year, growth averaged 3.4 percent.

    Growth in the first quarter is also continuing to decelerate, the bank said, with industrial output not rising from the first quarter of last year, weak investment activity and economic confidence gradually deteriorating.
    "There remain risks of further economic slowdown, stemming among other factors from the sluggish global recovery," the bank said, adding that the labour and credit markets would still support demand.
    "The Bank of Russia will continue to monitor inflation risks and the risk of the economy slowing down," it said.
    The central bank has been under pressure for months to cut rates to stimulate growth but last month Russian President Vladimir Putin defended the bank's policy on television saying its stance was "largely justified because it's aimed at subduing inflation" which is in the interest of citizens and the economy.



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