* Refi rate on hold at 7.75 percent as expected
* Inflation risks in check, risks to growth remain
* Balance of risks allows for on hold policy in coming mths
(Adds analyst comments)
By Toni Vorobyova
MOSCOW, Oct 29 (Reuters) - Russia's central bank as expected kept interest rates on hold on Friday and said accommodative policy could stay in place in coming months given risks to the economic recovery and a more subdued inflation outlook.
Russia's economy is recovering from its worst recession in 15 years and is expected to grow around 4 percent this year after shrinking nearly 8 percent in 2009. But latest data shows risks remain, with still-fragile domestic demand illustrated by weak September retail sales.
"The Bank of Russia considers it possible to retain accommodative monetary policy in coming months in order to support internal growth factors," the bank said in a statement, broadly echoing the tone from last month's meeting.
"The weakening in consumer demand and the uncertainty over the prospects of the external economic situation create additional risks for economic growth," it said.
Analysts polled by Reuters expect the benchmark refinancing rate will not be raised from the current 7.75 percent until the start of 2011.
"The comments (from the central bank) are very much in line with what was expected," said Julia Tsepliaeva, chief economist for Russia and CIS at BNP Paribas, who does not expect interest rate hikes to start until next March.
MORE FLEXIBLE ROUBLE
Inflation -- which spiked in the summer as the worst drought in decades killed a third of the harvest -- is expected to ease to 0.6 percent in October from September's seven-month high of 0.8 percent, reducing the need for near term rate hikes.
"This signals an easing of inflation expectations," the central bank said.
"Inflation risks determined by monetary conditions currently remain at an acceptable level and the increase in the flexibility of the rouble exchange rate together with the planned budget deficit reduction ... may contribute to creating the conditions for reducing such risks".
The central bank widened the rouble floating trading band earlier this month and scrapped a fixed exchange rate corridor. It said more steps would follow as it gradually shifts towards targeting inflation rather than the currency.
"The passage on the exchange rate is effectively a repeat that the central bank plans to reduce its presence in the market, and thus inflation risks will be less," said Tsepliaeva at BNP.
She added that such comments tend to fuel the prevailing market trend, which at the moment is for a weaker rouble. The rouble extended losses on Friday, closing in on its 2010 low against the dollar.
"In the longer term, though, I belive in a stronger rouble," Tsepliaeva said, adding that this would be supported by Russia's privatisation campaign, strong oil prices and an expected resumption of capital inflows. (Editing by Catherine Evans)