MOSCOW (Reuters) -Inflationary risks in Russia must decrease in order to create room for interest rate cuts, Central Bank Governor Elvira Nabiullina said on Thursday, in hawkish comments a week before the bank next sets interest rates.
The central bank has become more wary of inflation this year, warning of the risks of a widening budget deficit, weaker rouble and labour shortages. Its key rate currently stands at 7.5%.
Annual inflation decelerated sharply to 3.51% last month due to the high base effect. Prices in March 2022 rose by 7.61% in month-on-month terms after Russia sent tens of thousands of troops into Ukraine in February last year.
Nabiullina, in a copy of her speech to lawmakers posted on the central bank website, said annual inflation would slow again in April, but warned that price expectations among households and businesses remain high, above 2018-19 levels, when inflation was near the 4% target.
Households' inflationary expectations for the year ahead fell only marginally to 10.4% in April from 10.7% a month earlier, data showed on Thursday.
"External conditions also remain difficult," Nabiullina said. "In order to create space for further rate cuts, it is necessary that pro-inflationary risks decrease.
"If we sacrifice price stability, we will not be able to protect our citizens and enterprises in the future."
Promsvyazbank analysts forecasted a rate hold next week, saying inflation was continuing to move below the central bank's target and remained subdued, meaning there were no grounds to raise the key rate.
Nabiullina said the bank was committed to maintaining a floating exchange rate and would only enter the currency market when there was a risk to financial stability - as there was last spring when Western nations started imposing punitive sanctions on Moscow over its actions in Ukraine.