* C.bank keeps all interest rates on hold
* Does not comment on whether rates acceptable for near
* Warns that inflation above target is risk to expectations
(Adds, context, analysts' comments)
By Jason Bush
MOSCOW, Jan 15 Russia's central bank left
monetary policy unchanged on Tuesday and sounded a relatively
hawkish note on inflation again, muddying the waters over the
direction of its next interest rate move.
In a notable contrast with last month, the bank made no
mention of whether it sees money market rates as "acceptable for
the near future" - a formulation that had been seen as meaning
rates would stay on hold for a while.
"Judging by the statement, you can't unambiguously conclude
that rates will be lowered," said Vladimir Osakovsky, chief
Russia economist at Bank of America Merrill Lynch.
"It isn't dovish enough to support expectations of a rate
cut. There's nothing (in the statement) that would contradict a
Analysts polled by Reuters last month had expected the bank
to begin cutting rates in the second quarter in response to a
stabilisation of inflation and an economic slowdown.
But the central bank emphasised inflationary risks again in
its statement while sounding fairly relaxed about signs that the
economy is slowing, suggesting at the very least that it is in
no rush to cut rates.
"The toughening of the central bank's rhetoric... confirms
our expectation that the Bank of Russia will begin an easing
rate cycle only after a turnaround in the inflation dynamic:
that is, no earlier than the second quarter," said Vladimir
Tsibanov, economist at Rosbank.
Alexander Morozov, chief Russia economist at HSBC, predicted
that the bank wouldn't begin cutting rates until the second half
of the year, calling the market's expectation of a
second-quarter rate cut "very premature."
"Until annual inflation slows to within the 5-6 percent
target range the central bank probably won't be ready to lower
rates," he said.
For now, the central bank is pursuing a wait-and-see
strategy, leaving its main lending rates on hold for the fourth
month in a row.
It held the fixed one-day repo rate, a ceiling for the money
market, at 6.5 percent, with the auction repo rate also
unchanged at 5.5 percent. The refinancing rate, the cost of
overnight loans from the central bank, was kept at 8.25 percent.
The overnight deposit rate, a floor for interbank rates, was
left at 4.5 percent. Last month the central bank hiked this rate
by 25 basis points to reduce money market volatility.
The rouble strengthened fractionally following the central
bank announcement, gaining some 0.1 percent against the
euro-dollar basket to 34.76.
The central bank's ambiguous position is understandable
given mixed news on inflation - increasingly its central policy
benchmark as it gradually introduces a formal
On the one hand, underlying inflationary pressures in the
economy are abating, with core inflation falling to 5.7 percent
On the other hand, the main headline number for inflation,
annual consumer price inflation, remains well outside the
central bank's target range - and continues to rise.
This headline rate was at 6.8 percent on Jan. 9, up from 6.6
percent in December and above the central bank's target range
for this year of 5-6 percent.
True, headline inflation is spiking upwards largely because
of one-off price increases at the start of the year, such as
annual increases in transport fares and excise duties.
However, the central bank is still concerned that high
headline inflation could translate into higher underlying
inflation, implying no room for complacency.
"The inflation rate staying above the target range for a
prolonged period of time may affect economic agents'
expectations and thus poses inflation risks, despite the absence
of any significant demand-pull price pressures," the bank said.
In contrast, its comments on economic growth were relatively
relaxed - belying some analysts' expectations that the central
bank may begin paving the way this month for future interest
rate cuts to boost the slowing economy.
The bank said economic activity is gradually cooling, but
indicators of business sentiment remain positive and the labour
market tight. As previously, it saw little risk of a substantial
slowdown in economic growth caused by tight monetary conditions.
Its overall tone has left economists guessing over its
probable next move.
"The big question is what does the abolishment of policy
guidance mean for the policy outlook," wrote ING economist
Dmitry Polevoy in a note.
"We think it has been mostly done to get extra
flexibility... We would still not treat this as an indication of
a stronger bias either to tightening or to easing at this
(Writing by Jason Bush, additional reporting by Elena
Fabrichnaya, Oksana Kobzeva and Maya Dyakina; Editing by Hugh