RUSSIA-CENBANK/RATES-ANALYST Analyst says Russian central bank hike of main lending rate a 'preventative move'
Record ID:
565637
RUSSIA-CENBANK/RATES-ANALYST Analyst says Russian central bank hike of main lending rate a 'preventative move'
- Title: RUSSIA-CENBANK/RATES-ANALYST Analyst says Russian central bank hike of main lending rate a 'preventative move'
- Date: 31st October 2014
- Summary: MOSCOW, RUSSIA (OCTOBER 31, 2014) (REUTERS) VARIOUS OF EXTERIOR OF CENTRAL BANK OF RUSSIA VARIOUS OF PEOPLE IN MOSCOW STREETS WOMAN ENTERING CURRENCY EXCHANGE BUREAU VARIOUS OF EXTERIOR OF ZENIT BANK (SOUNDBITE) (Russian) DEPUTY CHIEF ANALYST AT ZENIT BANKING GROUP, VLADIMIR ESTIFEEV, SAYING: "The Russian Central Bank is actually acting really aggressively in my opinion. The raise of the rate by 150 basis points rather reflects overall the anti-inflationary prospect of the monetary and credit policy, the devaluation of the rouble, and the sanctions that we are observing, which were imposed against European trade companies. Right now we can see how forcefully food inflation is galloping (rising) - this measure by the Central Bank, in my opinion, is preventative to what we are in for, in relation to the rouble exchange rate and the prospect of inflation.'' VARIOUS OF BOARD DISPLAYING CURRENCY EXCHANGE (SOUNDBITE) (Russian) DEPUTY CHIEF ANALYST OF ZENIT BANKING GROUP, VLADIMIR ESTIFEEV, SAYING: ''There were concerns about the Central Bank, concerns that it was going to take some extraordinary measures in addition to controlling the lending rate. Probably some critical scenarios were thought of, like capital flow restrictions or something like this. Obviously, the Central Bank was expected to do something more than raise its main lending rate." VARIOUS OF PEOPLE WALKING ALONG STREET / BOARD DISPLAYING CURRENCY EXCHANGE RATE (SOUNDBITE) (Russian) DEPUTY CHIEF ANALYST OF ZENIT BANKING GROUP, VLADIMIR ESTIFEEV, SAYING (ASKED ABOUT FUTURE OF RUSSIAN ECONOMY): "It is hard to say for sure, because the changing of external food supplies is currently underway. Now new trading connections are being arranged. This process will surely take some time - maybe, about half a year. After that the prices are likely to get more stable, and the Central Bank is expected to mitigate its interest rate policy.'' VARIOUS OF STREETS OF MOSCOW
- Embargoed: 15th November 2014 12:00
- Keywords:
- Topics: General
- Reuters ID: LVA8OQG9SD0FWHNL65ZA68V0U8ZP
- Story Text: Russia's central bank raised its main lending rate by 150 basis points at a board meeting on Friday (October 31), citing concerns about above-target inflation, weak oil prices and a toughening of Western sanctions.
However, the bank said that it had not changed its rouble exchange rate intervention policy, confounding speculation that it might use Friday's meeting to announce changes that would have enabled a stronger defence of the rouble.
The move brings the bank's main lending rate, the one-week minimum auction repo rate, to 9.5 percent, and brings the cumulative increase this year to 400 basis points.
The central bank has been under pressure to raise rates to defend the sliding rouble, which has shed around 20 percent against the dollar since mid-year as a result of falling oil prices and Western sanctions imposed over Russia's actions in Ukraine.
Deputy chief analyst at Zenit Banking Group, Vladimir Estifeev, said the central bank's moves were a result of the weaker rouble and a ban on most Western food imports introduced in retaliation for sanctions.
"The Russian Central Bank is actually acting really aggressively in my opinion. The raise of the rate by 150 basis points rather reflects overall the anti-inflationary prospect of the monetary and credit policy, the devaluation of the rouble, and the sanctions that we are observing, which were imposed against European trade companies. Right now we can see how forcefully food inflation is galloping (rising) - this measure by the central bank, in my opinion, is preventative to what we are in for, in relation to the rouble exchange rate and the prospect of inflation," he said.
The increase was above analysts' expectations, according to a Reuters poll this week which predicted a half-point increase.
The measures are mostly considered to be temporary.
The central bank said in a statement: "If external conditions improve, and a persistent trend for lowering inflation and inflation expectations emerges, the bank of Russia will be ready to start to ease its monetary policy."
The bank also said it expected economic growth to be close to zero in the fourth quarter of this year and in the first quarter of next year. The rouble briefly firmed after the bank's decision, trimming losses from earlier in the session, before falling back into negative territory.
Estifeev attributed this to previous uncertainty over what steps the central bank would take.
"There were concerns about the central bank, concerns that it was going to take some extraordinary measures in addition to controlling the lending rate. Probably some critical scenarios were thought of, like capital flow restrictions or something like this. Obviously, the central bank was expected to do something more than raise its main lending rate," he said.
The future of the Russian economy and the central bank's main lending rate is currently unclear, says Estifeev, but adds prices will eventually stabilise to some extent.
"It is hard to say for sure, because the changing of external food supplies is currently underway. Now new trading connections are being arranged. This process will surely take some time - maybe, about half a year. After that the prices are likely to get more stable, and the central bank is expected to mitigate its interest rate policy."
The rouble has lost around 20 percent of its value against the dollar this year. The currency has been weakened by falling oil prices, risk aversion towards Russia because of its conflict with Ukraine, and demand for foreign currency from Russian companies shut out of Western capital markets.
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