Russian Growth Deflation by Inflation

by on November 10, 2013 4:30 am GMT

Inflation strikes Russia with the central bank refused to cut the benchmark rate as consumer prices threatened to hold inflation within the bank’s annual target. The Russian central bank’s decision was to leave the benchmark at 5.5 percent and refused to offer any forward outlook on the matter.

For the first time in five months, Russian policy makers are faced with growing inflation, and the inability to cut rates will leave Russian in worst slowdown in four years.”The central bank is essentially saying that nothing has changed in its assessment of risks to growth and from inflation, said Vladimir Kolychev, chef economist for VTB Capital-Moscow.

The statement issued by the central bank mentioned that the rise in consumer prices were due to “non-monetary factors,” including unusual rise in food stuffs and animal-based goods. The Economy Ministry reported that consumer prices may rise to 6.3 percent in November from the previous year and is outpacing estimates.

The Russian bank lending rate, MosPrime, could decline 13 bps over the next three months, according to forward-rate agreements tacked by Bloomberg. The ruble is also down against the dollar, declining .9 percent on Friday’s close.

The Russian central bank said it will see how inflation is over the longer-term when compared to current trend before revisting a potential rate cut. However, the said the the country will be plagued by slower growth over the next two decades.

Although, Oleg Popov voices a very reasonable idea. “The government should be the one stimulating the economy, not the central bank,” Popov said, whom manages Russian equities for Allianz Investments.