Inflation is beginning to slow in Russia, after one rise in bank reserve requirements in January and another one in February – the latter complete with the rate rise markets had been expecting for months.
A Reuters news flash tells us inflation slowed to 0.1 per cent in the week to February 28, bringing the price increase for the month as a whole in at 0.8 per cent, under expectations. Annual inflation has been rising steadily from a low of 5.49 per cent in July of last year, standing at 9.58 per cent at the end of January. The latest data should mean annual inflation to February fell slightly to 9.56 per cent.
Russia’s finance minister has indicated a preference for a hike in interest rates when the board meets on Friday. Governments are often pro-growth, with central banks taking the unpopular – and sometimes anti-growth – decisions needed to fight inflation. Not in this case. “The central bank is independent, but I think it is the time to take additional measures,” Russia’s finance minister Alexei Kudrin told the BBC, Reuters news wire reports.
Bank Rossii surprised markets (and us) in January by following bullish hints with a raise in reserve requirements instead of a rate rise. Prices have risen 2.9 per cent in the first six weeks of 2011: at that rate, annual inflation for 2011 would be 25 per cent. Read more
Russia has surprised markets by holding rates after a number of bullish hints in recent months. The central bank has, however, raised reserve requirements, joining a long list of emerging markets adopting this as their favoured tightening tool.
Bank Rossii is targeting hot money with the move: it has raised the reserve ratio more sharply for corporate non-residents than for ruble-only, individual or other types of liability. From February 1, banks will have to store 3.5 per cent of non-resident rouble and forex corporate liabilities with the central bank, a 1 percentage point increase. Other types of bank liability – such as those in roubles from individuals – will be raised half a point to 3 per cent. Use the dropdown on the chart below to explore historical reserve requirements at the Bank of Russia.
Bank Rossii chairman Sergei Ignatiev has told reporters that rates might be raised at next Monday’s meeting, Bloomberg reports. Mr Ignatiev hinted in December that rising inflation might lead to a rate rise in the first quarter, and that he was not scared of a stronger ruble.
A rise in the discount rate would be the first since the financial crisis, taking interest rates from their near-year-long record low of 7.75 per cent. Read more
** Updated: 16.54 – Confirmed by first deputy chairman Alexei Ulyukayev, according to Reuters, who said the move from 3 to 4 rouble-width boundary was part of the course of moving towards a policy of inflation targeting and a more flexible rouble exchange rate. He also said the central bank had reduced the size of interventions at the corridor’s boundaries to $650m from $700m.
Traders are reporting a widening of Russia’s exchange rate boundaries, as the currency hits an eight-month low. Bank Rossii, the country’s central bank, has been defending a ‘floating corridor’ of 33.4-36.4 roubles against a euro-dollar basket. To defend the range, the Bank would sell foreign currency when the exchange rate is in the upper third, 35.4-36.4 .
Bloomberg reports traders saying that Bank Rossii is no longer defending the 36.4 limit. Two traders are quoted as saying the corridor has been widened 50 kopeks in both directions, to 32.9-36.9. The Russian currency has weakened to 42.1875 against the euro in intraday trading, the lowest since early February (see chart). Read more