Central Bank of Russia Maintains Rates on Weak Growth

The central bank of Russia maintained its lending rate the same on Friday, for the second consecutive time stressing the risks of inflation above the worries over a stagnant economy.

This decision leaves the benchmark rate at the bank, its one-week repo rate, unchanged at 11%.

Russia is facing difficult policy dilemmas as it grapples simultaneously with inflation that is at more than 15% and a domestic economy that is ready to slump over 4% in 2015 with just meager prospects of recovery on the horizon.

Low prices of oil and sanctions by the West over the actions by Russia in Ukraine have slammed the economy. This has caused a drop in the ruble that has heighten inflation while cutting incomes in households and in spending.

Explaining the decision, leaders of the bank said it was due to the recognition of persistent and substantial risks of inflation.

The majority of analysts were expected the bank to maintain its rates, although a substantial minority believed the central bank would cut them by a half point.

The bank estimated inflation to be at 15.6% on October 26. However, the bank expects inflation to drop to below 7% by October of 2016, due to moderately tight monetary outlooks and weak demand domestically.

Advocates of cuts in the rate gained comfort from one of the statements in the bank’s message, which said that as the rate of inflation drops into line with the forecast, the bank would continue to lower its benchmark rates.

Certain analysts have read that statement to mean a rate cut was likely at the central bank’s next meeting during December.

One analyst expects the rate to drop by at least 50 basis points during December, if the currency market situation remains stable and if there is not a high probability of an increase in rates by the U.S. Federal Reserve at its meeting on December 16.

However, Russia’s central bank was clear that a decision in the future to lower rates would be at a forthcoming meeting, but not necessarily the one held in December.

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