Russia Central Bank Raises Interest Rates in Effort to Stem Risks--Update
December 14 2018 - 10:07AM
Dow Jones News
By Anatoly Kurmanaev in Moscow and Paul Hannon in London
MOSCOW -- Russia's central bank raised its key interest rate for
the second time in four months in a surprise decision Friday that
aims to underpin the ruble ahead of further moves by the U.S.
Federal Reserve and potential new Western sanctions.
Central banks in a number of emerging markets countries have
followed the Fed in tightening their monetary policy this year,
hoping to avoid an outflow of capital to the U.S. that would see
their currencies weaken, and inflation accelerate as prices of
imported goods rise. The Fed is widely expected to lift its key
interest rate for a ninth time since late 2015 when policy makers
meet next week, and twice more in 2019.
The Bank of Russia lifted its key rate to 7.75% from 7.5%,
having previously raised borrowing costs in September, a shift in
policy that brought an end to a series of cuts dating back to the
end of 2014.
In a statement, the central bank said it would "consider the
necessity of further increases in the key rate," pointing to an
expected pickup in inflation during 2019 caused by an increase in
sales tax in January.
The central bank said the monetary policy needs to remain tight
to protect against elevated external risks, such as the simmering
U.S.-China trade dispute, lower oil prices and potential new
Western sanctions against Russia.
"In the current environment, it is very important for us to
maintain a conservative approach when evaluating risks," Bank of
Russia's head Elvira Nabiullina told reporters following the rate
decision. "We must make sure that inflation remains under
control."
The new rate increase is likely to increase pressure on the
central bank from parts of the Russian government and big business,
who believe Ms. Nabiullina's dogged focus on inflation is stifling
growth. Ms. Nabiullina has made inflation targeting a pillar of
central bank's independence, defying government's attempts to
interfere in the monetary policy since taking office in 2013.
"Our approach will become less conservative when inflationary
expectations [in Russia] will become more anchored," she said.
Ms. Nabiullina said Russian economy is adapting to sanctions and
that any new putative measures by the U.S. and Europe would have
"limited impact" on the country.
The central banks also announced that it will resume buying
foreign currency for the government's reserve funds in January, a
move that could weaken the ruble.
The central bank aims to keep the annual rate of inflation at
4%, but now expects consumer prices to be rising by between 5% and
5.5% at the end of next year, even after taking account of the
impact of Friday's rate rise on the economy. It expects inflation
to fall back to the target 4% by the end of 2020.
"The tone of today's communications make clear that it wouldn't
take much to trigger another hike," analysts at Capital Economics
in London wrote in a note to clients after the rate decision.
Write to Anatoly Kurmanaev at Anatoly.kurmanaev@wsj.com and Paul
Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
December 14, 2018 09:52 ET (14:52 GMT)
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