September 4, 2018 / 10:58 AM / 2 months ago

UPDATE 1-Russia c.bank sees reasons for holding or raising key rate on Sept. 14

* C.bank head sees reasons to hold or raise rates

* Key rate now at 7.25 pct

* Rate-setting meeting due on Sept. 14 (Adds detail, quotes)

By Andrey Ostroukh and Elena Fabrichnaya

MOSCOW, Sept 4 (Reuters) - Russian central bank Governor Elvira Nabiullina said on Tuesday there were reasons for holding the key interest rate or even raising it as soon as next week in the wake of increased volatility on financial markets in Russia and abroad.

The Bank of Russia is expected to address risks of higher inflation caused by a rapid drop in the rouble, triggered by new U.S. sanctions and a sell-off on other emerging market, when it hold its next rate-setting meeting on Sept. 14.

“There is a substantial number of factors that speak for holding the rate. And some factors have emerged that allow for considering ... the issue of a possible rate increase,” Nabiullina said.

The rouble firmed briefly to 68.04 versus the dollar after Nabiullina’s remarks but soon pared gains and slid to 68.25 , trading 0.2 percent weaker on the day.

There were no reasons for lowering the key rate, now at 7.25 percent, at the moment, Nabiullina said, speaking at a press-briefing at Russia’s southern city of Sochi.

The recently increased risks of more U.S. sanctions against Russia have all but dashed hopes for more rate cuts this year and in the first half of 2019, a Reuters monthly economic poll showed last week.

Russia has been cutting rates over the past few years as once stubbornly high inflation has dipped to record lows, below the central bank’s target of 4.0 percent. But the rate-cutting cycle has stumbled this year at the government’s call for a tax increase.

Nabiullina said annual inflation was picking up towards the central bank’s target at faster than the bank had forecast, while inflationary expectations have also increased.

“We will assess all the risks. In our view, the main risks are of temporary nature and if they do not transpire into higher inflationary expectations, into secondary effects, then the monetary policy easing could just be slower than we previously thought,” Nabiullina said.

The central bank is set to announce its rate decision next Friday at 1030 GMT. This will be followed by a press conference with the Nabiullina, who is expected to shed more light on the monetary policy prospects. (Additional reporting by Katya Golubkova and Vladimir Abramov, Writing by Andrey Ostroukh, Editing by William Maclean)

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