The Russian central bank is likely to leave its key refinancing rate unchanged at 8% at its board meeting later this week as inflation, which prompted the previous hike, has slowed, analysts say.
The central bank surprised the market in February when it raised its refinancing rate 0.25 percentage points and other key rates by 1 to 0.5 percentage points for the first time in two years, signaling a switch in policy to targeting inflation from a ruble rate control. The central bank said the rate increase was prompted by high inflationary expectations.
“Given that in the first half of March inflation has demonstrated a deceleration, I believe that the central bank can now sit back and wait for its measures to take effect," Alfa-bank’s Nataliya Orlova said.
The regulator cut its refinancing rate several times in 2010, slashing it to a record 7.75 percent from 13 percent at the beginning of 2010.
Consumer prices rose 2.4% in January and a further 0.8% in February. Orlova said the international food crisis, exacerbated by a drought that killed a third of the grain harvest last summer, was the largest contributor to the price rises. Prices increased 0.3% in the first 14 days of March.
"It seems that the food price shock has been priced in full, so a possible price growth prospect in March and April looks acceptable," Orlova said.
Sberbank analyst Nadezhda Ivanova said a government order for oil companies to curb petrol prices also contributed to lower inflation in February. She said the central bank was likely to leave the refinancing rate unchanged at its board meeting on Friday but to increase deposit and reserve rates slightly.
Last week Central Bank First Deputy Chairman Alexei Ulyukayev said a stronger ruble had pushed prices down in February and March and would continue to do so in the next three-four months.
But he said the central bank would continue using interest and reserve rates and currency management to cut inflation to achieve its 7% target in 2011.
Bank of Moscow analyst Kirill Tremasov said that despite falling inflation, monetary risks remain high as there is about 1.5 trillion rubles of excess liquidity in the country placed on bank deposit accounts and zero coupon short-term OBR bonds.
"We expect the central bank to increase both refinancing and deposit rates by 0.25% due to high monetary inflation risks,” Tremasov said. “There is a strong possibility that the central bank will also raise reserve rates."
MOSCOW, March 21 (RIA Novosti, Ksenia Nekhorosheva)
