October 26, 2018 / 1:18 PM / in 2 months

UPDATE 1-Russia c.bank holds rates, says it will study if increases needed

* C.bank keeps key rate at 7.5 pct

* C.bank says will study need for more rate hikes

* Analysts’ view on next c.bank step vary (Adds analysts quotes, detail)

By Andrey Ostroukh and Maria Kiselyova

MOSCOW, Oct 26 (Reuters) - The Russian central bank kept its key interest rate unchanged on Friday but said it would study whether rate rises are needed to address risks to its inflation target and to financial stability.

The central bank’s decision to hold the rate at 7.5 percent was in line with the consensus forecasts of analysts who had pointed to fact the rouble has stabilised in recent weeks and that concerns about fresh U.S. sanctions against Moscow have somewhat declined.

“The Bank of Russia will consider the necessity of further increases in the key rate, taking into account inflation and economic dynamics against the forecast, as well as risks posed by external conditions and the reaction of financial markets,” the central bank said.

The central bank had to reverse a monetary easing cycle in September and raise rates for the first time since 2014, addressing the rouble’s slump to more than two-year lows.

The weaker rouble filters into prices and boosts inflation, which the central bank aims at keeping near its 4 percent target.

On Friday, the central bank said the balance of risks remained skewed towards risks of higher inflation. Controlling inflation is its main remit.

The central bank said inflation was on track to accelerate further after picking up to 3.5 percent as of Oct. 22. A planned increase in value-added tax from next year could help drive inflation readings as high as 5.5 percent by the end of 2019.

“Annual inflation will slow down to 4 percent in the first half of 2020 when the effects of the rouble’s weakening and the VAT rise peter out,” the bank said.

The rouble eased slightly to 65.80 against the dollar after the rate decision from levels of 65.77 seen shortly before .

“The domestic financial market has stabilised in the time since the previous board meeting. However, pro-inflationary risks remain elevated, especially over a short-term horizon,” the central bank said in a statement.

“The uncertainty over future external conditions persists.”

The central bank’s forward-looking guidance left analysts guessing over its next steps.

Morgan Stanley said in a note it still sees a 25 basis point rate hike in December, ahead of the VAT increase in January.

Capital Economic research firm said that “barring a significant escalation of sanctions and sharp fall in the rouble, the additional tightening being priced into markets is unlikely to materialise.”

“Our base-case scenario is unchanged 7.5 percent key rate in the upcoming meetings, but the risks to this view are tilted upwards,” Dmitry Dolgin, ING’s Chief Economist in Moscow, said in a note.

The next rate-setting meeting, which will be accompanied by a media briefing with Governor Elvira Nabiullina, is scheduled for Dec. 14. (Additional reporting by Polina Nikolskaya, Polina Ivanova, Tom Balmforth and Katya Golubkova Editing by Christian Lowe)

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