Moscow: Russia’s central bank left its main policy rate on hold as expected on Friday, citing inflation concerns, but hinted it may cut it in the months ahead as inflation falls.

The bank has now left the rate on hold at 11 per cent since July, signalling its determination to bear down on inflation to meet its target of 4 per cent by the end of 2017.

It has made clear it regards this as a bigger worry than stimulating the economy, which is expected to contract for a second consecutive year in 2016 under the impact of low oil prices and Western financial sanctions linked to the Ukraine conflict.

But in an accompanying statement, the bank also said a rate cut could take place at a “forthcoming” meeting should inflation risks abate. It has previously said this expression means at one of the next three central bank meetings.

“It was a quite a balanced decision,” said ING economist Dmitry Polevoy.

The reference to a cut at a forthcoming meeting, last made in December, was absent from statements in January and March, when the bank was worried about risks to inflation and financial stability resulting from a fall in oil prices and a weaker rouble.

Although most analysts had expected rates to stay on hold, many had also foreseen a softening of rhetoric this month as a strong rally in oil prices has lifted the rouble.

Inflation has also dropped sharply, falling to 7.3 per cent in March from 16.9 per cent a year earlier.

“Reasons for expecting a cut in rates already existed,” said Sergei Romanchuk, head of currency and money market operations at Metallinvestbank. “However, the central bank decided to show a lot of caution.”

Inflation risks

Explaining its decision to hold rates, the central bank said it was still worried about “elevated” inflationary risks.

It said some temporary factors had caused the recent drop in inflation, and that a continuing market glut meant oil prices could fall again, pulling the rouble back down.

The bank said there was mixed data about wages — a reference to official statistics that have shown wage growth recently picking up after months of stagnation.

And it said the lack of a budget consolidation strategy by the government was adding to inflation risks — the latest evidence of tensions between the bank and the government.

Alfa Bank economist Natalia Orlova said the bank is especially keen to hit its inflation target of 4 per cent inflation by 2017 because even the government doubts it.

“Staying cautious is also important for the CBR for reputational reasons, as the cabinet’s recent macroeconomic forecast for 2016-19 called into question its credibility,” she said in a note.

Under government forecasts approved last week, inflation is seen falling to 4 per cent no sooner than 2019.