Russia faces higher inflation, weaker rouble this year: Reuters poll

FILE PHOTO -  Shoppers look at meat on offer on a market stall in Moscow
FILE PHOTO - Shoppers look at meat on offer on a market stall in Moscow February 8, 2013. REUTERS/Mikhail Voskresensky/File Photo

August 1, 2017

By Zlata Garasyuta

MOSCOW – Russia faces the prospect of slightly higher inflation this year and a weaker rouble than previously expected, a Reuters poll of economists showed on Tuesday.

The shift in expectations comes after the Russian currency lost 2 percent of its value against the dollar in July, after U.S. lawmakers imposed a fresh round of sanctions.

The median forecast of 19 analysts and economists polled by Reuters was for consumer inflation of 4.2 percent this year, above last month’s call for a 4.1 percent reading.

Russia’s harvest, which is expected to be hurt this year by unusually cold and rainy weather, has affected inflation expectations, prompting the central bank to pause its rate- cutting cycle last week.

“This central bank step is logical. … Geopolitical risks also add to uncertainty,” said Denis Davydov, an analyst at Nordea Bank in Moscow.

Even though the central bank has pledged to bring annual inflation down to its 4 percent target by the end of this year, inflation expectations remain high.

But by the end of 2017, the central bank is expected to trim its main lending rate to 8.25 percent from 9 percent, the poll showed.

“Once the clouds around the impact of sanctions and the food shock clear, the board will likely return to policy easing,” JP Morgan said in comments to accompany its forecasts.

The rouble currency is seen trading at 61 versus the dollar a year from now, weaker than the 58.5 forecast by the previous poll.

Although the new U.S. sanctions are not expected to have a major economic impact, the diplomatic spat that has ensued since their approval has hurt the Russian currency.

While officials in Moscow had hoped that relations with the United States would improve swiftly under President Donald Trump, those hopes have now faded.

Analysts now on average expect Russian gross domestic product to expand by 1.4 percent this year, up from 1.3 percent predicted a month ago.

That is still short of the 2 percent growth rate promised by the economy ministry this year.

(Writing by Andrey Ostroukh and Alexander Winning, editing by Larry King)