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Business

Russia seen holding rates after rouble slide on geopolitical concerns

  • They believed the central bank would keep its key rate at 4.25%.
  • The single most important factor in favour of keeping rates unchanged is the enhanced geopolitical uncertainty and its effect on the rouble.
14 Sep 2020

MOSCOW: Russia's central bank is likely to keep its main interest rate on hold on Friday following a slide in the rouble on concern over geopolitical developments, a Reuters poll showed on Monday.

Twenty-five analysts and economists in a Reuters poll of 30 experts said they believed the central bank would keep its key rate at 4.25%.

Expectations for the on-hold decision on Sept. 18 grew stronger after the rouble slid to a six-month low against the dollar and its weakest levels since 2016 versus the euro earlier this month.

"The single most important factor in favour of keeping rates unchanged is the enhanced geopolitical uncertainty and its effect on the rouble," said Ivan Tchakarov, chief economist at Citi in Moscow.

The rouble fell on fears that the West may impose new sanctions on Russia in relation to its possible meddling in the political crisis in neighbouring Belarus and the suspected poisoning of Kremlin critic Alexei Navalny. Moscow denies any wrongdoing.

Central Bank Deputy Governor Alexei Zabotkin said last week that inflation in August exceeded expectations. Natalia Orlova, chief economist at Alfa Bank, said that was a clear signal that the rate will be left unchanged.

The central bank started cutting rates early this year when the economy took a hit from a plunge in prices for oil, Russia's main export, and from the coronavirus pandemic and subsequent lockdowns that hit business activity.

Five analysts predicted the central bank would continue cutting rates to support the economy given that inflation is still below its 4% target.

The central bank will consider a rate cut this month "thoughtfully and with care" as the coronavirus pandemic makes such a decision more complicated, Zabotkin said.

Zabotkin's comments "suggest that an interest rate cut has not been ruled out and we think that the inflation outlook provides scope for further easing," said Liam Peach, an economist at Capital Economics.

"Our forecast is for a 25bp interest rate cut to 4.00% on Friday."

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