The benchmark refinancing rate remained at 8.25% and the overnight repo and depo interest rates, which economists say are more relevant in determining overall monetary conditions in the economy, remained at 5.5% and 4.5%.
“The decision was supported by the assessment of inflation risks and economic growth prospects,” the central banksaid in a statement.
It said the pace of inflation increased to 7.1% year-on-year in January, a level that “exceeded substantially” the upper end of its target range of between 5% and 6%.
“The acceleration of consumer price inflation was mainly driven by higher growth rates of food and passenger transport services prices, while the nonfood goods inflation remained moderate,” the central bank of Russia said.
It added that inflation may stay above the target in the first half of the year and warned: “taking into account the effect on economic agents’ expectations, the inflation rate staying above the target range for a prolonged period of time poses inflation risks.”
The bank’s stance runs against the preference of Russia’s powerful President Vladimir Putin, who last month complained that high interest rates could slow down lending to companies and individuals.
“The bigger picture is that as the recent [economic] slowdown appears to have been driven as much by cyclical factors as by structural factors, there is little monetary policy can do to boost growth,” Liza Ermolenko, en emerging markets economist with Capital Economics, said. In its statement, the central bank noted that industrial output’s growth “remained subdued” and the growth of investment in production capacity continued to fall; but it noted that industrial capacity utilization was “relatively high” and gross output remained “close to its potential level.”
“Taking into account still relatively high bank lending growth rates, the risks of a significant economic slowdown stemming from the tighter monetary conditions are considered minor,” the central bank said.
Danske Bank economist Sanna Kurronen noted that monetary policy is becoming more effective in curbing inflation, as the Russian central bank has gradually allowed a more flexible exchange rate over the past few years.
“However, inflation is currently rising on factors where monetary policy has little effect, such as tariff increases and wage inflation due to tight labour market conditions,” Kurronen said.
“We expect inflation to remain elevated until the summer due to base effects.”
Follow us on twitter @emrgingmarkets