Russian central bank seen holding rates for now despite economic slump: Reuters poll

Thu Jan 29, 2015 9:11am EST
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By Kira Zavyalova and Jason Bush

MOSCOW (Reuters) - Russia's central bank will hold its main lending rate at 17 percent when it meets on Friday, even though the economy is likely to contract by 4.2 percent this year, a Reuters poll predicted on Thursday.

The bank jacked the rate up in mid-December at an emergency meeting provoked by a run on the rouble, as sliding oil prices and Western sanctions linked to the Ukraine conflict sparked financial turmoil.

An escalation of fighting in eastern Ukraine is adding to the economic pressures, with the European Union warning this week that further sanctions against Russia are planned.

"The economy is heading toward a recession in 2015," said ING economist Dmitry Polevoy. "Double-digit inflation is another evil that is not likely to ease its grip quickly."

Out of 12 analysts polled by Reuters, 11 expected the central bank to hold its key rate this month, with one predicting a one-point cut.

"I don't think we'll have any change in rates either tomorrow or for at least a couple of months," said BCS economist Vladimir Tikhomirov. "We find ourselves in a cycle of rising inflation."

A majority of analysts also expected the bank to hold rates until at least the end of the first quarter, but the poll predicted a reduction to 15.5 percent in the second quarter.

The central bank has said that it is unlikely to cut rates until inflation is on a clear downward trend. Inflation has instead been shooting up as a result of the slide in the rouble.   Continued...

A man walks out of a bank office, with an electronic board show REUTERS/Maxim Zmeyev