* Governor warns of possible further monetary tightening
* Economic slowdown not dampening inflation, says bank
* Russia to keep moving towards free floating rouble
(Adds Nabiullina comments)
By Jason Bush and Oksana Kobzeva
MOSCOW, June 16 Russia's central bank left its
key interest rate on hold as expected on Monday, citing concerns
about high inflation, and said further rate hikes were possible
if inflation remained above target.
The decision leaves the bank's major policy rate, the
one-week minimum auction repo rate, unchanged at 7.5 percent
after cumulative rate hikes of 200 basis points in March and
April linked to financial instability caused by the crisis in
The central bank has played down expectations of rate cuts
in the near future, arguing that it cannot afford to relax
monetary policy at a time when inflation, which hit 7.6 percent
as of June 9, remains well above the bank's 5 percent target for
the end of 2014 and its medium-term target of 4 percent.
"Keeping the (bank's key) rate at the current level for the
next few months will be enough to achieve medium-term inflation
goals," central bank governor Elvira Nabiullina told a news
conference after the regular board meeting.
"However we observe the presence of significant inflationary
risks at the current time. If these risks are realised, the Bank
of Russia will continue to raise the key rate," she said.
The bank said a continuing slowdown in Russia's economy was
having little restraining influence on inflation as the slowdown
was largely caused by structural factors such as unfavourable
demographic trends, high capacity utilisation, sluggish labour
productivity growth and declining capital investment.
The bank forecast that economic growth in 2014 would be 0.4
percent, below the government forecast of 0.5 percent, though it
predicted a slight acceleration in the second half of the year.
It also cut its forecast for 2015 growth to 0.9 percent and
for 2016 to 1.9 percent. In February, the bank forecast the
economy would grow by between 1.7 percent and 2.0 percent in
2015 and 2016.
ROUBLE FREE FLOAT
The steep rate hikes in March and April coincided with heavy
selling pressure on the rouble stemming from the political
crisis in neighbouring Ukraine, which has fuelled capital flight
from Russia amid fears of tougher Western sanctions.
Although the rouble has seen a strong rally in recent weeks
the central bank has warned that it is too soon to relax its
guard, citing continuing signs of financial instability.
Nabiullina said the bank was sticking to its strategy of
moving towards a freely floating rouble exchange rate but that
it would temporarily keep its threshold for interventions before
it moves the rouble's floating corridor at $1.5 billion.
The bank increased its threshold for interventions from $350
million in March in response to the big rouble sell-off.
On capital flight, which soared as the threat of Western
sanctions over Russia's annexation of Crimea from Ukraine
spooked foreign investors, Nabiullina said $7.4 billion left
Russia in May, excluding currency swaps, down from $8.8 billion
in the previous month.
She reiterated the bank's forecast for capital flight this
year of up to $90 billion.
The rouble was little changed after the decision to hold
rates. It shed 0.5 percent against the dollar on the day to
34.63, weighed down by fighting in eastern Ukraine and a gas
dispute between Moscow and Kiev.
(Additional reporting by Alexander Winning; Editing by
Elizabeth Piper and Gareth Jones)