Russia's central bank surprised markets by raising its deposit rate on Monday, with Chairman Sergei Ignatyev citing a weekend decision to lift a grain export ban as a risk factor for inflation. The hike in the deposit rate, the central bank's main tool for influencing money-market rates and liquidity, also reflects concern over capital outflows that have exceeded $50 billion in the past seven months despite oil prices over $100 per barrel.
The Bank of Russia raised its overnight deposit rate by 25 basis points to 3.50 percent. However, it held its refinancing rate at 8.25 percent and repo rate at 5.50 percent, and indicated that current rates will "be acceptable" in coming months. "The decision was made taking into account still-high inflation expectations and risks to steady economic growth," the central bank said in a statement. "The achieved level of interest rates is seen by the central bank as securing an acceptable balance between risks that inflationary pressure will persist and that economic growth will slow in the coming months," the central bank said.
April's mixed economic data, which showed higher unemployment, slower industrial output growth and "extremely low" capital investment, indicate that "substantial risks to steady economic growth remain," the central bank said. Annual inflation, at 9.7 percent as of May 23, is a major issue ahead of parliamentary elections in December and a presidential election in March 2012 and analysts still expect the central bank to raise interest rates later this year.