Central Bank Holds Rates

The Central Bank left all policy rates on hold as expected at its monthly meeting on Friday and struck a slightly more dovish note in its statement by dropping a previous phrase that the economy was running close to its potential.

The subtle shift in the financial regulator’s position followed President Vladimir Putin’s nomination this week of Elvira Nabiullina to replace outgoing bank chairman Sergei Ignatyev when he retires in June.

Nabiullina, Putin's top economic adviser, is seen as a trusted loyalist more likely to bow to political pressure to prioritize growth over inflation by supporting rate cuts after she takes the helm at mid-year.

In its statement, the Central Bank maintained its emphasis on inflationary risks but also expressed concerns about slowing economic growth.

It said that annual consumer price inflation of 7.3 percent in February and the beginning of March mainly reflected higher food prices and some regulated tariffs, but cautioned that expectations of faster price growth could become entrenched.

"The inflation rate staying above the target range for a prolonged period of time may affect economic agents' expectations and thus poses inflation risks," it said. The Central Bank's inflation target is 5 to 6 percent.

Economic growth continues to slow, with subdued investment growth and decelerating retail sales growth, as well as lower industrial output, the Central Bank said. But it added that economic confidence remains positive, with labor market and credit conditions supporting domestic demand.

The regulator expressed no view about whether the current level of interest rates would be appropriate in the future, an omission that leaves its options open to change rates soon.

The Central Bank held the one-day auction repo rate at 5.5 percent, while the fixed one-day repo rate remains at 6.5 percent and the overnight deposit rate at 4.5 percent.

The refinancing rate, the cost of overnight loans from the Central Bank, was held at 8.25 percent.