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Russian regulator keeps key interest rate unchanged

Russian regulator keeps key interest rate unchanged
The Central Bank of Russia has left its interest rates on hold at 11 percent, warning that inflation pressure in the country is still high and oil prices could be unstable.

“To reach inflation targets, the Central Bank of Russia may conduct its moderately tight monetary policy for a more prolonged time than previously planned,” said the regulator in a statement.

The central bank accepts that oil prices will average $30 per barrel this year with a gradual increase to $40 per barrel towards 2018. The regulator stressed the recent rise might prove to be unsustainable.

The Russian currency strengthened to 67.6 against the US dollar following the announcement. This is the strongest ruble rally since December after dropping to its historic low of 85.6 in January.

The regulator cited recent ruble weakness as one the causes of higher inflation. The central bank projects annual inflation will be less than six percent in March 2017 and will reach the four percent target at the year-end if there are no new shocks.

READ MORE: Ruble soars on Fed rate decision, rising crude prices

“Despite certain stabilization on financial and commodities markets and an inflation slowdown, inflationary risks are still high. They are related to the oil market environment, continued high inflationary expectations, and uncertainty over separate budget items,” the release says.

Last month the Central Bank of Russia predicted a more sizable GDP contraction in 2016 than forecast previously in a baseline scenario should oil prices and global prices for Russian exports remain the same.