Market confident Russia will hold rate at 7.25 percent on Friday

MOSCOW (Reuters) – The Russia Russian central bank is seen holding the key rate at 7.25 percent on Friday after it indicated last month the government’s proposal to increase value added tax has all but dashed prospects for further cuts in the coming months.

Looking for extra funding for decrees ordered by President Vladimir Putin, the government proposed to raise VAT from 2019, a move that the central bank warned would filter into consumer inflation already this year.

All 20 analysts and economists polled by Reuters predicted the central bank would hold the key rate at 7.25 percent RUCBIR=ECI.

“Probably, this is going to be one of the least intriguing meetings, as nothing really changed either in the domestic or external environment since the last decision on 15 June,” said Alexey Pogorelov, chief economist at Credit Suisse in London.

“Also, the central bank’s monetary policy department is not in the position to defend any strong view, given the announced change in its management,” Pogorelov said.

A few days after the previous rate meeting in June, Igor Dmitriev, the head of monetary policy department, said he had decided to leave the bank.

Natalia Orlova, chief economist at Alfa Bank in Moscow, said the main question now is whether the central bank would say it still plans to switch to a neutral monetary policy, or would start preparing market players so that they should not bet on further rate cuts.

The latest poll on the central bank key rate came in line with a Reuters monthly economic poll that showed late last month the Bank of Russia was unlikely to trim the key rate from 7.25 percent by the end of this year.

The central bank is set to announce the rate decision at 1030 GMT on Friday. This time there will be no press briefing with the central bank’s Governor Elvira Nabiullina.

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