Russia to Delay Rate Cut Amid Turkey Sanctions, Barclays Says

Russia will probably refrain from reducing its key interest rate in December as trade restrictions imposed against Turkey in retaliation for last week’s downing of a warplane are expected to push consumer prices higher, according to Barclays Plc.

Sanctions including an import ban on fruits and vegetables and travel limitations will weigh on economic growth and drive food inflation, Barclays’ analysts Durukal Gun and Daniel Hewitt said in an e-mailed report on Monday. As of 27 November, the bank had forecast that policy makers would lower benchmark borrowing costs by 50 basis points to 10.5 per cent, in line with the median estimate of 26 economists, data compiled by Bloomberg show.

The punitive measures will probably reverse the slowdown in food inflation, hampering the central bank’s efforts to revive the recession-hit economy with further interest rate cuts, the Barclays analysts said.

Turkey's downing of a Russian warplane last week halted an equity rebound driven by speculation that Russia’s role in fighting Islamic State terrorists would lead to improved relations with its former Cold War foes, who have imposed sanctions to punish President Vladimir Putin for supporting a rebellion in Ukraine.

"We think it is too soon for the central bank of Russia to feel comfortable enough with the extent of inflation deceleration that has taken place to re-initiate its rate cuts," Gun and Hewitt said on Monday. "This has added to financial market pressures from declines in global oil prices and ruble weakness."

Policy makers said in October that they were prepared to restart easing policy soon if their forecasts for slowing inflation are confirmed. They last reduced the key rate in July, lowering it 50 basis points to 11 per cent. While inflation has slowed for two consecutive months to 15.6 per cent in October, consumer prices are still increasing near the fastest level since 2002. The central bank’s medium-term goal is four per cent.