March 25, 2020 / 3:45 PM / in 13 days

UPDATE 1-Russia rate cut off agenda as cenbank signals higher inflation

* Inflation on track to rise as rouble weakens

* Central bank held base rates at 6% last week

* Coronavirus seen weighing on growth, employment

* Moody’s lowers Russia GDP growth forecast (Adds detail, quotes)

By Andrey Ostroukh

MOSCOW, March 25 (Reuters) - Inflation in Russia is on track to accelerate amid a steep drop in the rouble, the central bank said on Wednesday, signalling it has no plans to make lending cheaper as the coronavirus epidemic hobbles the economy.

The export-focused economy faces increasingly strong headwinds from a sharp drop in prices for oil that has fuelled the rouble’s 20% decline to four-year lows since the turn of the year.

Inflation risk was one of the reasons why the bank did not follow many other monetary authorities by cutting interest rates last week, holding them instead at 6%.

Weekly inflation has jumped to 0.3%, data showed on Wednesday, after running at no more than 0.1% for several weeks.

Sofia Donets, chief economist at Renaissance Capital who previously worked at the central bank, said she did not rule out the bank raising rates at its next policy meeting on April 24.

But inflation gains may well be capped by falling consumer demand as the weaker rouble drives prices of imports up, unemployment trends higher and coronavirus-related restrictions crimp economic activity.

On Wednesday, President Vladimir Putin declared a week of non-working days from March 28 to April 5 to slow the spread of the virus, though he did not specify who will need to observe that break.

The number of confirmed coronavirus cases in Russia rose to 658 as of Wednesday, with one death.

Also on Wednesday, rating agency Moody’s cut its 2020 growth forecast for Russia to 0.5% from 1.5%, citing low oil prices, weaker external demand and reduced household purchasing power.

“Our forecast assumes further restrictions will be needed in the coming weeks to contain the outbreak, which will weigh on consumption and investment,” it said.

According to a poll by the Center of Strategic Research, a Moscow-based think tank, Russian firms on average expect a 23% drop in revenue and a 16% drop in headcount by the end of this year. More than 500 firms of all sizes took part. (Additional reporting by Darya Korsunskaya and Elena Fabrichnaya; Editing by Katya Golubkova and John Stonestreet)

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