February 12, 2013 / 11:26 AM / 5 years ago

UPDATE 2-Russian central bank holds all rates, warns on inflation

* Central bank leaves all rates on hold as expected

* Inflation may exceed 5-6 pct target until H2

* Hawkish stance resists political pressure to cut rates

* Lowers reserve requirement on foreign liabilities (Adds context, analyst comments)

By Jason Bush

MOSCOW, Feb 12 (Reuters) - Russia's central bank left all its policy rates on hold at its monthly meeting on Tuesday, resisting political pressure to ease policy and warning that inflation would stay above target for an extended period.

Analysts had expected the central bank to hold rates after inflation rose above 7 percent in January, feeding doubts about its chances of achieving its 5-6 percent target range for 2013, and the rouble continued to strengthen slightly to 34.74 against a euro-dollar basket after the announcement.

In recent weeks some senior officials and businessmen have criticised the bank for not cutting rates to help a slowing economy. The bank, stepping up its anti-inflation rhetoric, is refusing to budge.

"There is a slight lurch in the direction of emphasising inflation over growth risks, which flies in the face of mounting political pressure to ease monetary policy," said Ivan Tchakarov, chief Russia economist at Renaissance Capital.

The central bank kept the one-day auction repo rate unchanged at 5.5 percent, while the fixed one-day repo rate, a de facto ceiling for the money market, remains at 6.5 percent.

The overnight deposit rate, a floor for interbank rates, was left at 4.5 percent. The refinancing rate, the cost of overnight loans from the central bank, was held at 8.25 percent.


In a statement, the central bank said it expected inflation to exceed its target range through the first half of 2013, which raised inflationary risks by reinforcing expectations of higher prices.

"The statement is a bit more hawkish than the previous one (in January)," said Alexei Pogorelov, economist at Credit Suisse.

"The phrase that they do not see inflation declining below the target level in the first half of the year ... means they are not discussing policy easing in the first six months."

The latest inflation forecast is more pessimistic than a prediction last week by Alexei Ulyukayev, the bank's First Deputy Chairman, that inflation would be back on target by the end of the second quarter.

The central bank was relatively upbeat on the state of the real economy, acknowledging a growth slowdown but playing down its gravity.

It said that economic output "remains close to its potential", while risks of an economic slowdown connected with a tightening of monetary conditions "are considered minor".

This relaxed view contrasts with concerns expressed by government officials, among them President Vladimir Putin, that high interest rates are stifling growth.

Economists, too, are divided on whether the central bank's tough policy stance is striking the right balance.

"The central bank is right when it notes that in current conditions a softening of policy wouldn't stimulate growth, but would stoke inflation," said Alexander Morozov, chief Russia economist at HSBC.

But Danske Bank economist Vladimir Miklashevsky said: "Such a hawkish policy is poisoning fixed investment growth and economic growth in the longer run," adding that the policy could do little to tame inflation which was rising for other reasons.

ING economist Dmitry Polevoy said the hawkish policy skew was marginally supportive for the rouble, but is postponing inflows into Russia's recently-liberalised treasury bond market because of uncertainty over the next rate move.


While leaving rates on hold, the central bank tweaked its minimum reserve requirements, in effect levelling the playing field for foreign and domestic investors putting money to work in Russia.

It brought into line the reserve requirements on liabilities to residents and non-residents, with a unified rate of 4.25 percent. Previously the rate was 4 percent for resident liabilities and 5.5 percent for non-resident ones.

The central bank said the change reflected a reduced need to regulate capital flows, as the rouble floats more freely. It described the measure as neutral for the banking sector and monetary policy.

"It is linked to the liberalisation of the market and a more equal access for all investors," said Pogorelov from Credit Suisse. "The share of liabilities in roubles is much higher, so unifying the rate is neutral in terms of liquidity." (Writing by Jason Bush; Additional reporting by Maya Dyakina, Oksana Kobseva, Vladimir Abramov and Yelena Orekhova; Editing by Douglas Busvine/Ruth Pitchford)

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