October 26, 2018 / 10:52 AM / 22 days ago

Russia c.bank holds rates, says to study if rate increases needed

(Adds detail, c.bank statement, market reaction)

By Andrey Ostroukh and Maria Kiselyova

MOSCOW, Oct 26 (Reuters) - The Russian central bank kept its key interest rate unchanged at 7.5 percent 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 was in line with the consensus forecasts of analysts who had flat rate, citing the fact the rouble has stabilised in recent weeks and that concerns about fresh U.S. sanctions against Moscow have somewhat declined.

“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 rouble eased slightly to 65.81 against the dollar after the rate decision from levels of 65.77 seen shortly before .

The central bank said the balance of risks remains skewed towards risks of higher inflation. Controlling inflation is its main remit.

The rouble’s drop to its weakest levels since 2016 in August this year prompted the central bank to reverse its rate-cutting cycle in September and raise the rate for the first time since late 2014.

“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 said inflation was on track to accelerate further after already picking up to 3.5 percent as of Oct. 22, heading closer to the bank’s target of 4.0 percent.

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 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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