Russia’s central bank unexpectedly increased its benchmark interest rate for the second time this year to cap inflation in the world’s biggest energy supplier. Bank Rossii raised the refinancing rate to 8.25 percent from 8 percent, it said on its website today. Fifteen of 20 economists in a Bloomberg survey expected no change. Policy makers in Moscow also increased the overnight deposit rate a quarter point to 3.25 percent and the overnight auction-based repurchase rate by the same amount to 5.5 percent. The change is effective May 3. Reserve ratios remained unchanged. The inflation rate has been above the central bank’s target of between 6 percent and 7 percent for this year since October, driven by rising food and fuel prices. The European Central Bank lifted interest rates this month for the first time in almost three years, while regulators in Brazil, India and China raised borrowing costs at least four times in the past year. “The decision was made due to continued high inflation expectations, exceeding inflation guidelines for the year, and also noting the mixed effect on the Russian economy of the trends on global financial and commodities markets,” the bank said in its statement. Ruble Gains The ruble was 0.9 percent higher against the dollar at 27.2899 and 0.4 percent stronger at 40.5750 per euro at 2:09 p.m. in Moscow. The 30-stock Micex Index (INDEXCF) slipped 1 percent to 1,732.05. The Russian central bank had relied on currency gains and higher reserve requirements for lenders to quell inflation, seeking to avoid choking economic growth. Modernizing the economy, a priority for President Dmitry Medvedev, “practically doesn’t begin” with inflation above 7 percent, Finance Minister Alexei Kudrin said April 21. “This is a positive development and means that they are not afraid to use nominal rates to combat inflation, and this makes ruble assets even more attractive,” said Roman Sulzhyk, director of rates trading in Moscow at Deutsche Bank AG, the world’s biggest currency trader. “It was as close a decision as we had in a while. The central bank did the right thing.” ‘Good Object’ German Gref, chief executive officer at OAO Sberbank, said today the ruble is expected to strengthen 10 percent, making Russian assets a “good object for investments,” according to an e-mailed statement from Russia’s biggest lender. The economy grew 4 percent last year after a 7.8 percent contraction in 2009. The Economy Ministry expects gross domestic product to expand 4.2 percent this year before slowing to 3.5 percent in 2012. Medvedev said in February that Russia should seek growth of as much as 10 percent a year within five years to keep up with the pace of rival so-called BRIC developing economies. Retail sales increased 4.8 percent last month from a year earlier even as real wages unexpectedly fell for the first time in 16 months and disposable income dropped 3.4 percent. Banks boosted lending to households in March at the fastest monthly pace since December as loans rose 2.2 percent after a 0.6 percent advance in February, central bank data show. Corporate loans advanced 1.3 percent last month. Propensity to Save “Retail trade outstripping real incomes in recent months, combined with growing lending to individuals and slower growth of retail deposits, suggest a likely drop in people’s propensity to save,” the central bank said in the statement. This “may become a factor of increasing inflation risks.” Russia raised all of its main policy rates in February, adding to a quarter percentage point increase to the deposit rate in December. The central bank also raised reserve requirements for banks at its first three policy meetings this year. The regulator left the mandatory reserve level unchanged today to avoid triggering a “liquidity deficit” in the banking industry, ZAO Raiffeisenbank economists said by e-mail. Consumer prices will probably rise 0.4 percent in April from the previous month, slower than a monthly increase of 0.6 percent in March, Sergei Voloboev, a London-based emerging- markets economist at Credit Suisse Group AG, said in an e-mail yesterday. The inflation rate was at 9.6 percent as of April 25, the central bank said. The rate fell from a 15-month high of 9.6 percent in January to 9.5 percent in February and March as the ruble rose 12 percent against the dollar this year. To contact the reporter on this story: Scott Rose in Moscow at rrose10@bloomberg.net To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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