Russia to Hold Rates After Price Growth Halt

Russia’s central bank will probably leave interest rates unchanged for a fourth month as inflation decelerates to the slowest since November and a faltering global recovery saps growth in the world’s biggest energy exporter.

Bank Rossii will hold its refinancing rate at 8.25 percent after increases in February and April, according to all 22 economists in a Bloomberg survey. Inflation probably slowed to 8.3 percent in August from 9 percent, according to the median estimate of 16 economists in a separate survey. The central bank may meet this week. The Federal Statistics Service will release inflation data today or tomorrow.

The increase in weekly consumer prices halted in July, giving scope for lower borrowing costs amid a stuttering economic rebound. Central bank First Deputy Chairman Alexei Ulyukayev said last week that inflation won’t exceed 7 percent, the slowest since the Soviet Union collapsed in 1991.

“An inflation slowdown in August is the main signal for the central bank to leave rates unchanged,” Alexei Moiseev, the Moscow-based chief economist at VTB Capital, said by phone Sept. 2. Consumer costs probably fell 0.2 percent in August from the previous month and the “waning trend of price growth may continue in September,” he said.
Slowing Growth

Europe’s debt crisis and slower U.S. expansion are eroding demand for Russia’s commodity exports. The economy may expand slower than expected in 2011, growing 4.1 percent compared with an earlier prediction of 4.2 percent, Deputy Economy Minister Andrei Klepach said Aug. 26. The government expects consumer prices to rise 6.5 percent to 7 percent this year, with the final figure likely to be nearer the lower end of that range, Klepach said.

Gross domestic product grew 4 percent in 2010 after a record 7.8 percent contraction the previous year.

Investors have scaled back bets for higher interest rates. Forward-rate agreements show the likelihood of 21 basis points of interest-rate increases in the next three months, down from a 2011 high of 115 basis points on Jan. 26, Bloomberg data show.

Russia’s inflation has declined the most of the so-called BRIC nations since January, allowing Bank Rossii to keep the benchmark refinancing rate within half a percentage point, of a record-low of 7.75 percent.

Brazil on Sept. 1 became the second country in the Group of 20 Nations after Turkey to lower borrowing costs in response to the worsening global outlook. On Aug. 26, Mexico also signaled that it may follow suit. Russia may cut its main policy rate twice this year, Bank of America Corp. predicts.
‘Appropriate’ Rates

Borrowing costs are “appropriate” for balancing risks of quicker inflation and an economic slowdown for the “coming months,” the central bank said in a statement Aug. 4 after its last rate meeting. Policy makers will keep the overnight auction-based repurchase rate at 5.5 percent and the overnight deposit rate at 3.5 percent this month and reserve ratios will be unchanged, separate Bloomberg surveys showed.

The cost to fix payments on ruble debt using one-year swap contracts dropped 7 basis points, or 0.07 percentage point, from last month’s peak on Aug. 9 to 5.305 percent today, according to data compiled by Bloomberg.

The ruble slid for a third day, losing 0.7 percent 29.3425 per dollar as of 11:50 a.m. in Moscow. The Russian currency depreciated 4.4 percent against the dollar in August, the biggest monthly drop since May 2010 and the worst performance among BRIC economies. Brazil’s real fell 2.5 percent against the greenback, India’s rupee slipped 4.1 percent and China’s yuan appreciated 0.9 percent.
Inflation ‘Cushion’

Cumulative consumer-price growth may reach 0.3 percent to 0.4 percent in the third quarter because of a zero-inflation “cushion” in July and August, Ulyukayev said last week. Russia’s inflation may slow to between 4 percent and 5 percent in 2014, he said.

Modernizing the economy, a priority for President Dmitry Medvedev, “practically doesn’t begin” with inflation above 7 percent, Finance Minister Alexei Kudrin said in April. Russians see inflation as the third-biggest challenge facing the country behind a threat of alcoholism and drugs and low living standards, according to a Sept. 1 poll by the state-run VTsIOM research center.

Consumer prices probably declined 0.1 percent from a month earlier in August, bringing year-to-date growth to 5 percent, two Bloomberg surveys showed. That would be the first monthly deflation in six years, according to Bloomberg data.

“Inflation pressure is dropping,” said Natalia Orlova, chief economist at Alfa Bank in Moscow. “The central bank has no reason to tighten policy.”