Russia's central bank, Bank Rossii said that it might increase interest rates in the first quarter of 2011 as policy markets shift towards a hawkish bias to contain inflationary pressures. Chairman Sergey Ignatiev told reporters in Moscow yesterday inflation is beginning to worry us adding that the central bank will primarily use interest rates to stave off rising price pressures.
The central bank left rates the key refinancing rate at 7.75% for the sixth consecutive month in November. The dilemma for the central bank is to keep inflation in check while not offset the recovery from last year's 7.9% slump which remains fragile, especially amid the global markets instability. Weighing the monetary tightening in the first quarter will market the first hawkish move on rates since 2008 after inflation accelerated the most in 11 months in November.
Annual inflation might reach 8.4% this year fueled by rising food prices and weaker ruble according to Ignatiev, as the drought drove food prices to surge fueling headline inflation after to hit a record low of 5.5% in July.
The Economy Ministry estimates 3.8% GDP expansion this year, which is less that the 4.0% initially estimated. The economy expanded at the slowest pace in the third quarter of this year by 2.7% annual pace affected by the slowing global recovery and the drought that hit the nation which hurdled exports and curtailed spending on surging prices.