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Russia’s central bank sees reasons for holding or raising key rate
September 12, 2018
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MOSCOW: Russian central bank Governor Elvira Nabiullina said there were reasons for holding the key interest rate or even raising it as soon as next week in the wake of increased volatility on financial markets in Russia and abroad.

The Bank of Russia is expected to address risks of higher inflation caused by a rapid drop in the rouble, triggered by new US sanctions and a sell-off on other emerging market, when it hold its next rate-setting meeting on September 14.

“There is a substantial number of factors that speak for holding the rate. And some factors have emerged that allow for considering the issue of a possible rate increase,” Nabiullina said.

The Russian rouble weakened beyond 70 versus the dollar for the first time since mid-March 2016 on Monday, remaining under pressure from the possibility of more US sanctions.

The rouble hit 70.51 on the Moscow Exchange, taking its year-to-date losses close to 19 per cent.

US Senate hearings on Wednesday on sanctions against Russia, and an interest rate decision by the Russian central bank on Friday will be the main events this week, said Rosbank, a subsidiary of Societe Generale.

The rouble was 0.7 per cent weaker at 70.40 versus the dollar and had shed 1.1 per cent to trade at 81.68 against the euro.

The threat of sanctions has overshadowed Russian financial markets since early August as new penalties might be applied to holdings of Russian state debt. Concerns about the Russian-US dispute over the Syrian conflict have also weighed.

Domestic politics are also a factor. Over the weekend, police detained around 1,000 people protesting against planned increases in the pension age, disrupting demonstrations against an unpopular change that has hurt President Vladimir Putin’s approval rating.

“I imagine that pictures of school kids beings rounded up in Moscow by police over the weekend, and on-going concerns over on-going Russian escalation in Syria (Idlib) will not have played very well with the US Congress which is still mulling over new Russians sanctions iterations,” said Tim Ash, a strategist at BlueBay Asset Management.

The central bank is seen holding the main rate at 7.25 per cent this week as the weaker rouble, hit by the sanctions factor and a sell-off in other emerging markets, is set to filter into consumer prices and once again boost inflation, which the central bank has just recently managed to rein in.

Senior Russian officials are keeping up verbal pressure on the central bank, which is not available for comment as it observes a week of silence before rate decisions.

Kremlin economic aide Andrei Belousov said a possible rate increase would be “highly undesirable” after Prime Minister Dmitry Medvedev said late last week that lending rates in Russia should be lower.

The central bank is independent, and markets and investors regard Governor Elvira Nabiullina as a stable hand on the tiller.


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