Nabiullina Seen Holding Russia Rates as Inflation Limits Options

Elvira Nabiullina file photo

(Bloomberg – – Scott Rose & Olga Tanas – July 10, 2013) Elvira Nabiullina will probably kick off her tenure as Russia’s monetary policy chief by holding rates as inflation remains above target, which her predecessor blamed for the lack of monetary easing the past nine months.

The central bank will leave the refinancing rate at 8.25 percent at tomorrow’s meeting in Moscow, according to 15 of 22 economists in a Bloomberg survey. Seven forecast a cut, up from four in June. The main lending and deposit rates will also be kept unchanged, two separate polls showed.

Nabiullina, a former economy minister whose arrival followed senior officials seeking monetary stimulus, is battling a perception that she would heed those calls and deliver a more accommodative policy than predecessor Sergey Ignatiev. Economists last month scaled back forecasts for rate cuts this quarter after Nabiullina, 49, cautioned against using lower borrowing costs and the exchange rate to boost growth.

“If Nabiullina cuts the main policy rates at the first meeting, it would send the wrong signal to the market,” said Tatiana Orlova, senior economist at Royal Bank of Scotland Group Plc in London. “As headline inflation is still almost a percentage point above the central bank’s target range, a cut would raise questions about the continuity of the policy of inflation targeting.”

The three-month MosPrime rate, which large Moscow banks say they charge one another, may drop 23 basis points, or 0.23 percentage point, in the next three months, according to forward-rate agreements tracked by Bloomberg.

Easing Deferred

Economists are predicting the central bank will push back easing, delivering one quarter-point cut in the third quarter followed by another reduction in the fourth, according to a Bloomberg survey conducted in June. The previous month analysts predicted two cuts this quarter.

While the inflation rate dropped below 7 percent in June for the first time this year, it has remained above the central bank’s 5 percent to 6 percent range for 10 months. It may drop back into that band in by September or October, Ignatiev said in June before ending his 11-year tenure as chairman.

Still, drop may convince Nabiullina to move more quickly to reduce rates, according to a growing minority of economists. The central bank has signaled a bias toward easing, reducing some longer-term rates on seldom used instruments at each of the last three meetings.

Balance Tipped

“We had expected the central bank to be cautious, despite an easing bias, and hold the main policy rates to September,” Jacob Nell and Alina Slyusarchuk, analysts at Morgan Stanley (MS), wrote in a report last week. “Now we think that the good June inflation print, ongoing weak growth indicators and the exogenous tightening from higher global yields tip the balance.”

Yields on Russia’s ruble debt due in 2028 have jumped 77 basis points to 7.91 percent since May 22, when Federal Reserve Chairman Ben S. Bernanke first raised the possibility of scaling bank the U.S. central bank’s bond purchases in 2013.

Nabiullina has sought to deflect speculation she would focus on the economy more than Ignatiev, arguing that Bank Rossii helps foster growth by containing inflation. The central bank must also avoid responding to short-term changes in the economy or political pressure, she said in an interview before her first day in office.

“The signs from recent communications are that Nabiullina will continue the cautious approach of her predecessor,” said Neil Shearing, chief emerging markets economist at Capital Economics Ltd in London. “That might mean that the board wait for further evidence that inflation has peaked and is now falling.”

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