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Russia to Hold Rates in December Amid Rising Inflation

MOSCOW, Nov 30 (Reuters) - Russia is expected to withstand pressure to cut rates next month as inflation is likely to exceed the central bank’s target after the rouble dropped to multi-year lows in November, a poll of economists and analysts showed on Monday.

Russia has slashed rates to record lows to support the economy amid lower oil prices and the COVID-19 pandemic, but geopolitical tensions that have hurt the rouble have limited the room for more cuts.

The consensus forecast of 20 analysts and economists suggested the central bank would hold its benchmark rate at 4.25% on Dec. 18, even as the International Monetary Fund has advised monetary easing.

“Increased inflationary pressure due to the weakening rouble and rising food prices makes a December key rate cut unlikely,” said Kirill Sokolov, chief economist at Sovcombank.

Analysts forecast an uptick in inflation to 4.4% by the year end, up from 4.0% in the previous poll in late October.

The central bank is expected to trim the key rate to 4%, the level of its inflation target, where it is seen throughout 2021.

In 2020, the oil-dependent economy will contract by 3.8%, then grow by 3.3% in 2021, the poll forecast. The previous monthly poll predicted a 4.2% contraction this year and 3.2% growth next year.

The rouble outlook worsened from a month ago, after it plunged in November to its weakest since March against the dollar and levels last seen in early 2014 versus the euro.

The poll showed the rouble was expected to trade at 73.09 to the dollar and 88.80 to the euro 12 months from now. The previous poll foresaw exchange rates of 70.30 and 83.30, respectively.

“Capital inflows to emerging markets and rising oil prices thanks to expectations of a strong global economic recovery in 2021 will support the Russian currency,” said Sokolov.

On Monday, the rouble’s official exchange rates, set by the central bank, were 75.86 per dollar and 90.46 per euro.

Most of the forecasts in the Reuters poll were based on at least 10 individual projections.

(Writing by Alexander Marrow; editing by Andrey Ostrouk, Larry King)

Source: Reuters

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