Russia's central bank is likely to leave its key lending rate at a record low of 7.5 percent at its July 30 board meeting, amid lower inflationary pressure, analysts polled by RIA Novosti said on Thursday.
Since April 2009, the central bank has lowered its refinancing rate 14 times from 13 percent to facilitate the country's exit from recession.
Analysts, however, disagreed on the effect the drought, caused by a persistent heat wave in Russia, would have on consumer price growth and the level of the central bank's benchmark interest rate by the end of the year.
INTEREST RATES TO STAY UNCHANGED
Analysts polled by RIA Novosti said there were no grounds for the central bank to change the refinancing rate at its July 30 board meeting.
Annualized inflation remains at 5.6-5.7 percent, the minimum level that could be achieved at present, Alfa-Bank chief economist Natalia Orlova said.
"The drought has been a serious factor in the latest month and was not considered at the central bank's previous meeting... However, it is too early to speak about inflation growth - even if the inflation rate starts to grow, the central bank has a safety margin between the current level of consumer prices and the refinancing rate," she said.
Aton brokerage analyst Alexander Sivolobov also said that the refinancing rate would remain unchanged.
The central bank will not lower the refinancing rate because inflation growth in the second half of the year was expected before while the current drought is increasing pressure on inflation. At the same time, it is too early to raise the lending rate as inflation shows no signs of growth, he said.
DROUGHT AGAINST SUMMER DEFLATION
But analysts differed on inflation expectations.
Troika Dialog leading economist Anton Struchenevsky did not rule out a seasonal fall in consumer prices in summer, especially for fruit and vegetable prices. "To my mind, the heat and drought do not carry any special inflation risks... Even if the drought factor works, it will not put up monetary pressure and will not lead to interest rate hikes," he said.
Orlova, however, disagreed, saying the drought might affect agriculture producer prices. "We can hardly expect a seasonal summer deflation as unfavorable weather conditions discourage a fall in food prices, even during the harvesting campaign," she said.
Meanwhile, Sivolobov said summer deflation was possible, but would be lower than in 2009.
FORECASTS DIFFER
Analysts gave different forecasts on inflation trends and the level of the regulator's rates at the end of the year.
"Inflation could reach 5.5 percent. In the fourth quarter, when it becomes obvious that drought fears are unfounded, the regulator may restart interest rate cuts and bring it down by another 0.5 percentage points. There are no grounds for interest rate hikes,” Struchenevsky said.
The regulator could increase the refinancing rate by a quarter percentage point by late 2010, Orlova said. "For the end of the year, we have raised the inflation forecast to 7.5 percent. In our estimate, the drought will inevitably lead to grain and food prices."
Prices will rise in any case amid economic growth and stronger domestic demand, prompting the central bank to raise key interest rates, according to Sivolobov.
"We expect consumer prices to grow 7-7.2 percent in 2010, while the refinancing rate will stand at 8-8.25 percent," he added.
MOSCOW, July 29 (RIA Novosti)
