Russia central bank to keep rates on hold on Friday as inflation speeds up

MOSCOW: Russia's central bank is seen keeping its main interest rate at a record low on Friday, with inflation well above the 4% target and a weaker rouble limiting room for further monetary easing, a Reuters poll showed on Monday.

All 26 analysts and economists polled on Monday said the central bank would hold its key rate at 4.25%, where it has been since last July.

The central bank started cutting rates early last year when a plunge in oil prices, Russia's main export, and coronavirus-induced lockdown measures hit the economy.

It switched to less dovish forward guidance at its last meeting in December, and recent growth and inflation data have justified that stance, Morgan Stanley said in a note.

Inflation, its main remit, accelerated to 5.2% in January and is expected to peak in February, driven by the weaker rouble, the central bank said.

Volatility in Russian assets has surged in recent weeks after Kremlin critic Alexei Navalny was jailed upon returning to Russia for the first time since being poisoned last summer, leading to nationwide protests that have dented the rouble in particular.

"We believe that rising inflation and external market volatility, especially related to geopolitical risks, could make [the Bank of Russia] tighten its rhetoric about the key rate trajectory," said Artem Zaigrin, chief economist at Sova Capital.

Despite forecasting no change in rates, Alexey Pogorelov of Credit Suisse Economics said the likelihood of a hike was being underestimated by the market, pointing to conditions in 2018 when high inflation, a weak rouble and the threat of sanctions on local debt led the central bank to raise rates.

The rate decision is due at 1030 GMT on Friday and will be followed by an online media conference with Governor Elvira Nabiullina.