Russian central bank warns of future hikes

Russia's central bank on Friday warned of possible interest rate hikes ahead if inflation risks rise, as it held its key rate at 11 percent after a fresh oil price drop.
"On the backdrop of yet another oil price slump, monthly consumer price growth rates stabilised at a high level, with a higher risk of accelerated inflation," the bank said in a statement after its latest board meeting, warning that "should inflation risks amplify, the Bank of Russia cannot rule out a tightening of its monetary policy."

Authorities have been struggling to revive Russia's recession-hit economy -- battered by Western sanctions over Ukraine and low oil prices -- and the ruble's recent woes on the back of a fresh slump for oil have hampered their efforts still further.

The Bank of Russia has been juggling inflation fears against demands from business to cut rates after a mammoth hike to prop up the ruble in December 2014.

"The recent weakening of the ruble is putting pro-inflationary pressure and causes inflation expectations to grow, despite a slowdown in annual inflation," the bank said, predicting that inflation this month would drop to 10 percent, down from 12.9 percent in December.

In its statement the bank said that it estimated annual inflation would drop to under seven percent by January 2017 and reach its target of 4 percent by the end of next year.

Russia's GDP dropped by an estimated 3.7 percent in 2015 and looks set to shrink again this year.

The bank warned that "should oil prices remain persistently low, this will further escalate inflation and financial stability risks, and will require a more extensive adjustment of the economy to the new conditions."

- 'Hawkish' statement -

Analysts at Alfa Bank said that the "hawkish" comment from the central bank was aimed at calming foreign exchange markets after a roller-coaster few weeks.

The ruble fell to a record low against the dollar of almost 86 last week as oil prices hit a 12-year low but has regained ground to around 76 on Friday as oil has rebounded slightly.
Alfa Bank said, however, that a rate rise at the central bank's next meeting on March 18 "would not be a viable policy option" and that authorities were likely to stick at 11 percent.

Russia's government -- which relies on oil and gas for over half of its budget revenues -- is struggling to keep down its budget deficit to three percent of GDP.

The economy minister on Thursday pledged nearly $10 billion to tackle the country's financial crisis, but it was unclear where the money would come from.

Russian Energy Minister Alexander Novak also said that Moscow was ready to take part in an OPEC meeting in February aimed at establishing possible "coordination" in the face of low oil prices.

But analysts remain sceptical about the prospect of Russia and OPEC countries cutting their production, as both sides have increased oil output to preserve their place on the market.
Source :AFP