MOSCOW, Feb 14 (Reuters) - Russian central bank Governor Elvira Nabiullina said on Friday there was no reason to raise or cut interest rates now, after the bank’s rate-setting council said it would have to tighten policy if inflation deviates above target.
A decline in the rouble’s exchange rate was expected to add a “moderate” 0.5 percentage points to inflation, Nabiullina told a briefing after the Bank of Russia earlier held its key rate at 5.5 percent for the sixteenth meeting in a row.
Any decision to raise interest rates would be in response to inflation, and not to defend the rouble, said Nabiullina, who took the top job at the central bank last June.
“When we talk about the possibility of tightening our monetary policy we do not look at it as a way of supporting the path taken by the rouble,” Nabiullina said.
“We will not make a decision to tighten monetary policy unless we see that inflationary risks are materialising.”
Economic growth has been ebbing, coming at a disappointing 1.3 percent last year and forcing the central bank to revise down its growth forecast to between 1.5 percent and 1.8 percent this year, below the government’s forecast of 2.5 percent.
“For now, our economic growth remains rather weak and that is why raising rates now could hamper growth,” Nabiullina said.
The central bank expects that inflation, which at 6.5 percent last year exceeded the central bank’s target of no more than 6 percent, is likely to come down and reach its 5 percent target by the end of 2014.
The central bank is pursuing a strategic shift towards a policy of inflation targeting, which entails scaling back currency interventions to allow the rouble to float freely by 2015. Nabiullina said there was “absolutely” no plan to delay this despite the recent sell-off in the Russian currency.
“We’re conducting a monetary policy that had been announced earlier and in agreement with its framework we smooth out short-term (rouble) volatility,” Nabiullina said.
“And we are going to continue doing that, raising the rouble’s flexibility so by the end of the year we shift to a free float regime.”
She said the rouble appeared to be undervalued in relation to the performance of Russia’s current account, which is a broad measure of a country’s exports of goods and services, as well as and earnings on international investments. (Reporting by Lidia Kelly and Oksana Kobzeva; Editing by Douglas Busvine and Jason Bush)