Russian central bank keeps rates unchanged despite oil price rebound

Russian rate-setters stuck to their guns, keeping interest rates on hold and cautioning they might stay at current levels for longer despite a rebound in global oil prices and a rally in the ruble.

Following a policy meeting on Friday the Central Bank of Russia opted to keep its main policy tool, the one-week auction rate, at 11.0%.

That was in-line with most economists' forecasts, although a minority had expected a 50 basis point reduction to 10.5%.

Sticky inflation expectations, amid consumer prices running at twice Moscow's medium-term target of 4.0%, kept the CBR in a holding pattern.

Public finances had also come under pressure year-to-date, with oil prices still well below the $50 level upon which this year's forecasts had been based.

“Despite a certain stabilization in financial and commodity markets and a slowdown in inflation, inflation risks remain high,” the CBR said in a statement.

Hence, the "moderately tight" policy stance might remain in place for longer than previously planned.

Given less demand for central bank funds from the country's lenders, “we see a softening of monetary conditions, impacted by reduced structural deficit of liquidity, even if the key rate is unchanged,” it added.

In its fight to reign in the public deficit at 3.0% of gross domestic product the CBR was forecasting - and implicitly willing to tolerate - a drop of between 1.3% and 1.5% in GDP growth, even after the economy sharnk by 3.7% in 2015.

CBR forecast a recovery in GDP towards the tail-end of 2016 and the beginning of 2017.

Inflation on the other hand was seen declining below 6.0% in a year's time but there were risks it would still be above target by the end of 2017.

As of 11:37GMT the US dollar was 0.66% lower against the ruble at 67.6763.