The Russian central bank left its key interest rate on hold at a regular meeting on Friday, signalling a dovish shift in policy which may mean that a recent cycle of rate hikes is over. Speaking at a news conference after the rate decision, central bank governor Elvira Nabiullina said that the bank sees no need to raise rates at present as inflation is on track to fall over the medium term.
"Despite the fact that in the short term inflation will exceed an annualised 7 percent, the current level of the key rate is consistent with the objective of reducing inflation to the 4 percent target in the medium term without creating a risk of excessive cooling of the economy," Nabiullina told journalists. But the uncharacteristically dovish stance also suggests the bank is reacting to concerns about ebbing economic growth as Western sanctions over the Ukraine crisis bite, as well as political pressure not to tighten policy further.
In an annual monetary policy strategy document also published on Friday, the bank said it sees Western sanctions over Ukraine having a "prolonged" impact that would curtail economic growth next year. The decision keeps the bank's central policy rate, the one-week minimum auction repo rate, at 8 percent, and was broadly expected. "Nabiullina is clearly worried on the growth front," Standard Bank analyst Tim Ash commented. "She highlights the CBR's assumption that geopolitical risks will remain elevated for some time, and that even the existing sanctions will weigh on the economy for some time." The rouble plunged to a new record low of 37.90 against the dollar on Friday - although it was unclear to what extent the central bank decision to hold rates had any impact.
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