Russian central bank keeps rates on hold, prioritises financial stability

by Reuters
Friday, 14 March 2014 10:01 GMT

By Lidia Kelly

MOSCOW, March 14 (Reuters) - The Russian central bank kept its key lending rates unchanged at a regular meeting on Friday, after unexpectedly raising them two weeks ago when assets tumbled on President Vladimir Putin's declaration he had the right to invade Ukraine.

The bank said it would not loosen monetary policy in the coming months, as the rouble's weakening puts pressure on inflation.

The one-week repurchasing agreement rate was kept at 7 percent, after the central bank hiked it by 150 basis points on March 3 to stem capital flight from Russia.

"The Bank of Russia's priority is to contain the effect of (the rouble's) exchange rate dynamics on inflation and to maintain financial stability," the central bank said in a statement.

"Hence, the Bank of Russia does not intend to lower the key rate in the coming months."

The stand-off with the West over Ukraine and Sunday's referendum in the southern Ukrainian region of Crimea on whether to join Russia have taken their toll on Russian assets.

The central bank has been forced to put on hold its long-promised shift towards inflation targeting, risking tipping the Russian economy into recession to try to ensure financial market stability.

The rouble is down 11 percent against the dollar this year , adding pressure on consumer price inflation. The central bank has spent at least $16 billion so far this month to keep it from falling too fast.

Russian stocks have lost 17 percent since Putin's declaration and the capitalisation of the MICEX index is down $66 billion since March 3, not including the 3.5 percent slump in stocks seen on Friday.

Analysts said they expected the central bank to keep its rates on hold this time and many do not see any monetary easing until at least a presidential election due in Ukraine on May 25.

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