beyondbrics

Russia on Friday took a step towards easing monetary policy in response to concerns about slowing economic growth.

But it maintainted its inflation-fighting credentials by acting in the most cautious possible way – cutting the refinancing rate, raising the deposit rate and leaving unchanged the key repo rate.

The Central Bank of Russia (CBR) eased the largely-symbolic refinancing rate by a quarter point to 8 per cent,  lifted the deposit rate by the same to 4 per cent, and left at 5.25 per cent the repo rate – the key rate for market participants. It said its actions were “neutral” for monetary policy.

The rouble rallied moderately on the surprise decision – trading 0.8 per cent up against the US dollar at 31.1 at 1pm Moscow time. Economists had expected the bank to leave rates unchanged as the country moves through a tense period in politics, with a big demonstration planned for Saturday by protesters angry at alleged fraud in the recent parliamentary elections and at prime minister Vladimir Putin’s authoritarian policies.

Ivan Tchakarov of Renaissance Capital wrote: “We interpret the decision as an attempt from the CBR to deliver the most cautious of easings possible.”

The CBR continues to maintain the key message that the current level of money market rates strikes the right balance between inflation and growth risks. It gives the CBR plenty of flexibility to change course depending on incoming economic data.

So while the Russia’s political drama hots, the central bank clearly wants to play it cool in the markets.

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