MOSCOW: Russia's central bank held interest rates on Friday and signalled a steady hand in the months ahead as it weighs risks to inflation and growth and as the country elects a new president.
Although inflation has hit a post-Soviet low of 4.1 percent on delays to increases in household utilities bills and a stronger rouble, price pressures are expected to kick in from mid-year, making it tough to meet the bank's 6 percent target.
"We shouldn't be lulled into a false sense of security by the good current inflation number," the central bank's first deputy chairman, Alexei Ulyukayev, told a financial conference after the decision to hold rates, which had been expected.
The economy is unlikely to sustain the pace of last year's 4.3 percent expansion, with strong consumption offset by weak manufacturing, and external risks from a possible flare-up in the euro zone debt crisis weighing on policymakers' minds.
"Given current internal and external macroeconomic trends, the level of interest rates is considered by the central bank as acceptable for coming months," the central bank said in a statement.
The bank left the fixed one-day repo rate which has become an effective ceiling for the money market as banks contend with tightening liquidity at 6.25 percent. The largely symbolic refinancing rate was held at 8 percent.
The one-day deposit rate, a de facto floor for the market when liquidity is abundant, was left at 4 percent.
Prime Minister Vladimir Putin, front-runner to win the March 4 presidential election, has sought to boost the feel-good factor among Russian voters by delaying annual increases in their electricity and gas bills.489
But the increases will take effect from mid-year, making it tough for policymakers in calibrating policy at a time of heightened domestic political uncertainty and potential risks that the euro zone crisis could escalate again.
Although Putin faces no credible rival, his is under pressure from opposition protests demanding electoral reforms and a cleanup of corruption in the Russian government. The next big demo will be held on Saturday.
"You have a definitely positive inflation trend, but this is related to the pre-election period and may reverse after the elections so this is definitely not a reason to cut interest rates," said Natalia Orlova, chief economist at Alfa Bank.
The rouble showed no immediate reaction to the central bank's decision, which had been widely priced in by the market.
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