* Impact of drought on prices may last until next autumn * 2010 inflation seen around 8 pct * Does not repeat pledge to keep rates on hold in coming months * Says rouble fall due to growing imports, speculators
(Adds analyst comments, details, background)
By Toni Vorobyova
MOSCOW, Sept 24 (Reuters) - Russia's central bank on Friday signalled it had become more concerned about inflation, saying a drought may affect prices until next autumn, in what may be the first sign of a shift towards eventual rises in interest rates.
Inflation this year could reach 8 percent, central bank chairman Sergei Ignatyev said in the first major public address by the regulator since a severe drought killed a third of Russia's harvest, pushing up prices for key foods.
"The very unfavourable weather conditions of this summer may have a significant, if time-limited, impact on inflation. By next autumn this impact may be fully exhausted," Ignatyev said.
Ignatyev's prognosis on inflation implies that the impact of the drought on prices is proving deeper than previously thought. At the start of the month the central bank had still expected 2010 inflation of around 7 percent. [ID:nLDE6810XG]
It also suggests that, if the refinancing rate is not raised from the current record low of 7.75 percent, real rates will dip into negative territory by year-end -- something the central bank has previously said it would seek to avoid.
The central bank is next due to meet on rates on Sept. 28.
"In the current conditions, the chances that the central bank may start to increase rates are growing," said Anna Bogdyukevich, analyst at Gazprombank.
"I do not think that the central bank's policy will change next week ... But in late November or December it is possible. We think that a hike of 25 basis points is possible this year."
Despite restating the past path of interest rates, Ignatyev made no comment on their future. He did not repeat the bank's line from late August and early September that rates would likely remain on hold in coming months.
Economists estimate the prolonged drought, which was accompanied by wildfires that doused Moscow in smoke, will knock around a percentage point off economic growth this year, now expected at 4 percent after a sharp contraction in 2009.
ROUBLE
Any potential rate hikes could also help slow the weakness in the rouble, which has slumped to multi-month lows this week.
"Among reasons for some rouble weakening (this month), I would name the trend for a smaller current account surplus as a result of fast import growth. In the last few days speculative factors played a role," Ignatyev said.
He reiterated that the central bank does not have a specific target for the rouble, but intervenes to smooth out volatility.
"In the last few months the central bank's currency interventions were insignificant," he said, adding that in the first 22 days of September it had sold around $0.6 billion.
The rouble showed no immediate reaction to the comments,
retaining earlier gains to trade around 8 kopecks firmer versus
the basket at 35.62 by 0818 GMT
A weak rouble can further add to inflation pressures by pushing up the cost of imports -- although such rises in prices may also cool overall demand for the same goods.
On the flipside, the rouble's stabilisation in the summer months and a recent reversal may help tame money supply growth.
Ignatyev blamed money supply growth on "the large scale purchases of foreign currency" by the central bank earlier this year, which have now reversed as a result of rouble weakness.
The other liquidity boost -- from the government spending its Reserve Fund to plug the budget deficit -- has also halted.
"The finance ministry has started using domestic borrowings more widely to cover the deficit, which we welcome in every way," Ignatyev said.
"Thus in coming months we expect a slowdown in money supply growth," he added, whilst noting that for now the still fast growth of money supply is adding to inflation risks.
The central bank's support for increased government borrowing could be one reason why it delays rate hikes, according to Vladimir Osakovsky, analyst at UniCredit.
"The Ministry of Finance is amidst aggressive domestic borrowing that's going well and the government is really vulnerable in this to adverse movements in rates," he said.
"The next rate movement will be upwards, that's for sure, but that will not happen before 2011, possibly early 2011."
-- For HIGHLIGHTS of the speech, click on [ID:nLDE68N0FP] (Additional reporting by Lidia Kelly, Oksana Kobzeva and Gleb Bryanski; editing by Patrick Graham)