Azernews.Az

By Bloomberg

Russian inflation probably accelerated in February to the fastest pace in almost 13 years, complicating the prospects for deeper monetary easing in the aftermath of the country’s worst currency crisis since 1998.

Consumer prices rose 16.7 percent from a year earlier, compared with 15 percent in January, according to the median estimate of 22 economists surveyed by Bloomberg. The Federal Statistics Service in Moscow will report the data this week.

Inflation is on pace to more than double from the start of last year after the ruble’s 46 percent drop in 2014 ignited price growth that was already on the uptick following Russia’s bans on food imports in retaliation for U.S. and European sanctions over the conflict in Ukraine. The advance in prices last month will bring inflation above the central bank’s benchmark interest rate, which policy makers unexpectedly lowered at their last meeting in January as they signaled concern over a recession facing the Russian economy.

“The Russian central bank has assumed a forward-looking approach, and will probably dismiss further acceleration in headline inflation as the lasting consequences of the December ruble rout,” Tatiana Orlova, chief Russia economist at Royal Bank of Scotland Plc in London, said by e-mail. “However, soaring headline inflation may prompt it to switch to smaller cuts, of 100 basis points.”

The central bank cut its key rate by 200 basis points to 15 percent in January after raising it six times last year, including a 6.5 percentage-point emergency increase in December, to defend the ruble and counter market turmoil.

Less Easing?

Derivative traders are scaling back bets for more easing. The three-month MosPrime rate, which large Moscow banks say they charge one another for ruble deposits, may drop 60 basis points, or 0.6 percentage point, in the next three months, forward-rate agreements tracked by Bloomberg show. That compares with 8.7 percentage points of reductions seen on Dec. 22.

Rate setters are guided by inflation forecasts, not current price growth, in shaping monetary policy, according to Bank of Russia First Deputy Governor Ksenia Yudaeva. Policy rates will remain positive in real terms during a horizon of six months to one year, she said Feb. 10.

The Russian currency has been recouping its losses following last year’s collapse. The ruble’s record appreciation in February has made the currency the world’s best performer that month, while local-currency bonds handed investors the biggest returns in emerging markets last month, according to data compiled by Bloomberg.

No U-Turn

The central bank has signaled that a surge in prices won’t necessarily prompt another policy reversal. “There’s no reason to talk about the inevitability of a rate increase” because the Bank of Russia doesn’t see significant factors that may lead to further inflation growth, Governor Elvira Nabiullina said in an interview with Bloomberg Television Feb. 9.

Higher inflation readings are the result of past factors, such as ruble depreciation, and the central bank estimates price growth will decelerate amid economic contraction and shrinking consumer demand, Nabiullina said. The central bank will next review borrowing costs March 13.

Inflation is the most widespread complaint among Russians, according to a poll on the most acute issues facing the country published by state-run VTsIOM research center Feb. 17. The Economy Ministry estimates inflation will peak at 17 percent to 17.5 percent in the first half of the year and slow to 12.2 percent by end-2015.

“Food counter-sanctions and a weak ruble” remain the biggest reasons for the inflation pickup, said Dmitry Polevoy, the chief economist for Russia and the Commonwealth of Independent States at ING Groep NV in Moscow, who predicts a 100-basis-point rate cut in March. “If the central bank doesn’t do that at the next meeting, rate cuts are inevitable in the second quarter.”