Arab Today, arab today russia holds rates after shock hike
Last Updated : GMT 03:43:50
Arab Today, arab today
Arab Today, arab today

Russia holds rates after shock hike

Arab Today, arab today

Arab Today, arab today Russia holds rates after shock hike

Moscow - AFP

Russia held borrowing costs steady yesterday after a hike three weeks earlier accompanied by a threat of further action against inflationary pressures that keep rising despite slowing growth. The Russian central bank\'s board of governors said they faced down their double-edged conundrum by voting \"on the basis of inflation risks and the economic growth outlook\" to leave the main interest rate unchanged at the current 8.25 percent. The bank had stunned the market on Sept. 13 by raising rates from 8.0 percent despite an economic slowdown that has seen industrial production slip alongside flat consumer and investor demand. Russia\'s action flied in the face of the easy money stance being kept by central banks of most industrialized countries given weak global growth. Yet Russia\'s central bank said yesterday it would continue to closely \"monitor inflation risks, including world price trends on food\" and called the situation with prices troubling. The 12-month consumer inflation rate jumped to 6.6 percent in September — well above the original 6.0 percent target and a pace forcing the government to lift its annual expectations by a full percentage point. The bank also noted a continued acceleration of the core inflation figure that discounts for fluctuation in the price of food and oil. VTB Capital said its analysis showed the core inflation rate was now running at almost 7.0 percent in recent months and not the 5.6 percent figure published for the four months ending in September. \"We.... see the central bank hiking another 25 basis points by the end of this year to preserve credibility and anchor inflation expectations,\" it wrote in a note to clients ahead of the decision. Analysts remain on a rate hike watch because the bank has already signaled that its main worry was the pressures coming from rising food prices and utility tariffs. \"We believe that the inflation risks are higher (than the dangers of slowing growth),\" the central bank\'s first deputy head Alexei Ulyukayev said in advance of Friday\'s meeting. Yet the Economics Ministry also expects gross domestic product expansion to slow to less than three percent in the second half of the year after seeing 4.5 percent expansion in the first six month. So some analysts therefore predicted a cautious inflation fighting approach that also takes into account the bank\'s view that overall demand was not coming under \"significant\" inflationary threat. Inflation evokes powerful memories among Russians who lived through an early post-Soviet era in which their life savings were wiped out in a matter of weeks. It was always a presence throughout the 1990s and had only reached a new post-Soviet low of 6.1 percent in 2011. But President Vladimir Putin had little alternative but to cut into subsidies when his May return to a third term featured a promise to boost spending on everything from social security to high-tech defense. \"On 1 September, heating tariffs were increased 6.0 percent, which led by chain to higher prices for hot water supply,\" VTB Capital noted. Russia\'s growth meanwhile is still dependent on fluctuations in the price of its oil and other commodity exports — a bane Putin has promised to address for years. The country\'s economy is now expected to run a budget deficit over the long term because energy costs have not kept up with Putin\'s spending plans. The current account surplus had averaged at 8.0 percent since Russia\'s 1998 financial meltdown and debt default. \"Without high and rising oil prices, Russia will soon have to borrow from abroad in order to maintain the present pace of domestic demand growth,\" London\'s Capital Economics consultancy remarked.  

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