Economists pushed back forecasts for a cut in Russia's benchmarkrate today after the central bank said that inflation would slow tonext year's target of 5 percent only in the second half.

Monetary-policy makers held the one-week auction rate, thebenchmark introduced in September, at 5.5 percent at their meetingtoday, the Moscow-based central bank said today in a statement onits website. That matched the forecasts of all 23 economists in aBloomberg survey.

Central bank Chairman Elvira Nabiullina, the former aide toPresident Vladimir Putin who took the post in June, is focused ontaming consumer-price growth to help the economy, rather than ratecuts. Inflation was 6.5 percent from a year earlier as of Dec. 9,unchanged from November, according to the statement.

“There is a clear risk in my view that they'll either not cut atall next year, or they'll cut by less than the 50 basis pointsthat's expected,” Ivan Tchakarov, chief economist for Russia andthe CIS at Citigroup Inc., said by phone from Moscow. He said he'sreviewing his forecast after the regulator issued its inflationoutlook today.

In late November, economists surveyed by Bloomberg said theyexpected a quarter-point cut in the first three months of the year,according to the median of 20 estimates. They also forecast aquarter-point cut in the second quarter followed by no changethrough mid-2015. As recently as October, analysts had projected areduction this year.

The three-month MosPrime rate, which large Moscow banks say theycharge one another, may drop 24 basis points, or 0.24 percentagepoint, in the next three months, according to forward-rateagreements tracked by Bloomberg. That's down from as much as 56basis points in August.

“Bank Rossii forecasts that inflation will resume the decliningtrend in the first half of 2014 and reach the target in the secondhalf,” policy makers said in today's statement. “The expectedsluggish recovery of external demand and the subdued investmentactivity will constrain inflation dynamics.”

Consumer prices accelerated more than forecast in November to6.5 percent, a three-month high. The causes of the acceleration,led by an increase in food and vegetable prices that was “unusualfor this season,” should have a short-term effect, according to thestatement.

Inflation Expectations

The central bank has kept its main rates on hold since September2012, when they were raised a quarter point. Household expectationsfor inflation remain “very high,” central bank First DeputyChairman Ksenia Yudaeva told lawmakers Nov. 14.

The central bank is seeking to keep consumer price growth toabout 5 percent next year as it prepares for a shift to inflationtargeting in 2015. The target rate will drop by a half point ineach of the following two years, according to the regulator'sthree-year monetary policy plan.

“The latest rise in Russian inflation, coupled with mountingconcerns over the rapid expansion of consumer credit, mean thateven the modest cuts in interest rates that we had penciled in forearly 2014 now look unlikely,” Neil Shearing, chief emergingmarkets economist at Capital Economics Ltd. in London, said in ane-mailed note. “We've tweaked our forecast and now expect rates toremain unchanged throughout next year.”

'Below Potential'

Last week, the Economy Ministry cut its growth forecast to 1.4percent in 2013 and 2.5 percent in 2014. The economy is growing at“slightly below its potential,” the central bank said.

With the economy growing near potential, policy makers shouldlean toward tighter monetary policy to slow inflation, theInternational Monetary Fund said in a Dec. 10 statement following amission to Moscow. The Washington-based lender reduced its forecastfor 2014 growth to 2 percent from 3 percent.

The central bank doesn't have much room to cut rates, though itmay attempt to ease borrowing costs by providing greater credit tocommercial lenders, said Economy Minister Alexei Ulyukayev, whomoved to the post in June after serving at the central bank as afirst deputy chairman.

“Even though the situation with inflation is mainly related tosupply shocks and not monetary policy, it doesn't give much room tomaneuver,” he told reporters Dec. 11 in London. Next year's targetof 5 percent inflation is “quite realistic” and will be helped by afreeze in prices charged by state-run monopolies, he said.

The regulator scheduled the next policy decision for Feb. 14,skipping a rates meeting in January. The first week of the year isa holiday period.

Russia won't cut its main interest rate until the second quarter“at the earliest,” according to Vladimir Miklashevsky, a tradingdesk strategist at Danske Bank A/S in Helsinki. The central bankmay cut the rate by a total of half a point next year, moving “verycautiously,” he said.

“Bank Rossii will continue its expansionary policy, avoidingrate cuts as those are 'more visible' for market participants,” hesaid by e-mail. “Bank Rossii's strategy is not to cut the price butincrease the supply of money, which in the longer run would keepinterbank rates at moderate levels.”

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.