* Russian central bank leaves key rate at 11 pct
* Cites persistent, substantial inflation risks
* Says will cut interest rates as inflation falls (Adds details and comment)
By Jason Bush and Alexander Winning
MOSCOW, Oct 30 (Reuters) - Russia’s central bank left its main lending rate on hold on Friday, for the second time in a row, stressing inflation risks above worries about a stagnant economy.
The decision leaves the bank’s benchmark rate, the one-week minimum auction repo rate, unchanged at 11 percent.
Russia faces painful policy dilemmas as it simultaneously grapples with inflation running above 15 percent and an economy set to slump by 4 percent this year with only meagre recovery prospects in sight.
Low oil prices and Western sanctions over Russia’s actions in Ukraine have hit the economy, causing a slide in the rouble that has stoked inflation while cutting household incomes and spending.
Explaining its decision, the bank said in an accompanying statement that it was “in recognition of persistent substantial inflation risks”.
A majority of analysts polled by Reuters had expected the bank to hold rates, although a significant minority believed the bank would make a half-point cut.
Analysts were also divided after the decision.
“It is amazing and disappointing how fine the CBR feels with the slumping economy,” Danske Bank economist Vladimir Miklashevsky said.
“They seem to care more about inflation. They want to be 150 percent sure that the CPI will not accelerate while they do real harm to future economic growth.”
But Alfa Bank economist Natalia Orlova praised the bank’s resolve, arguing that inflation was now a bigger worry than negative economic growth.
“The (U.S.) Fed’s tightening schedule, and China’s outlook are external risk factors that might pressure the rouble exchange rate and thus negatively affect inflation expectations and the inflation trend,” she said.
The bank estimated that inflation was running at 15.6 percent as of Oct. 26. However, it expected inflation to fall below 7 percent by October 2016 because of moderately tight monetary conditions and weak domestic demand.
Advocates of rate cuts drew comfort from a line in its statement which said that as inflation falls in line with forecast, the bank would continue lowering its benchmark rate.
Some analysts read that to mean that a rate cut was probable at the next central bank meeting in December.
“We suppose that the rate will be lowered by 50 basis points in December, if the situation on the currency market remains stable and if there won’t be a high probability of the Federal Reserve increaing rates at its Dec. 16 meeting,” Renaissance Capital economist, Oleg Kouzmin, said.
However, the central bank also made clear that a future decision to cut rates would be at “one of its forthcoming meetings” - not necessarily the next one in December.
It also said that its future decisions would be guided by the balance between inflation risks and the risks of the economy cooling, a form of words it has used before to signal it intends to leave its options open. (Additional reporting by Lidia Kelly, Elena Fabrichnaya and Oksana Kobzeva; Editing by Louise Ireland)