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Russia signals second rate rise

October 03, 2012

MOSCOW, Oct 2: Russia’s central bank on Tuesday signalled plans to raise the main interest rate for the second time in three weeks because of inflation risks that outweighed quickly slowing growth.

The bank’s first deputy head Alexei Ulyukayev said ahead of Friday’s decision-making meeting that he could not exclude raising the rate again after a hike to 8.25 from 8.00 per cent on September 13 — the first of the year. The move made Russia the world’s only major economy to raise the cost of borrowing during the current global wave of financial struggles and concern over the eurozone.

“We believe that the inflation risks are higher (than the dangers of slowing growth),” the RIA Novosti news agency quoted Ulyukayev as saying.

“We do not rule out the possibility of either leaving the rates unchanged or raising them,” he added.

Critics have questioned Russia’s decision to raise rates to account for the rising prices of food that have accompanied the heavy droughts experienced this summer in Europe and North America. London-based Capital Economics warned last week that there was little the Russian authorities could do to ward off rising grain product prices under current conditions.

“All told, we think headline inflation will peak at just under seven percent by the end of the year,” the consultancy said in its report.

Russia has already been forced to raise its year-end inflation target from six to seven per cent after seeing prices climb more than six per cent in September. The central bank said on Tuesday that it expected headline inflation  to come in at 6.3 to 6.4 per cent this year.—AFP