Russia’s central bank left its main interest rates unchanged today, ending a 14-month easing cycle as the economic recovery gathers speed and inflation slows. Bank Rossii left the refinancing rate at a record low 7.75 percent, it said on its website today, as forecast by all 15 economists in a Bloomberg survey. It also kept the repurchase rate charged on one- and seven-day loans unchanged at 6.75 percent. The regulator last trimmed rates on May 31.

“The main trends in economic activity, monetary and credit sphere remain the same,” the bank said in a statement. “The recovery trend remains in industrial activity, employment and domestic demand. The continued gradual recovery of bank lending, which began in March, and decreasing interest rates on loans to the real sector are positive factors.” The bank is likely to keep rates unchanged “in the coming months.”

The economy may expand 7 percent this year, Goldman Sachs Group Inc. Chief Global Economist Jim O’Neill said on June 19, compared with the government’s 4 percent forecast. Higher commodity prices and domestic demand are helping the world’s biggest energy exporter recover from last year’s 7.9 percent slump, the biggest on record. Inflation this year will slow to between 5.5 percent and 6.5 percent, the government estimates.

Necessary Conditions

Russian stocks erased gains after the decision and the ruble remained little changed. The Micex Index slipped less than 0.1 percent at 1,322.80 as of 11:10 a.m. in Moscow, after rising as much as 0.4 percent. The ruble traded at 31.2575 per dollar, from 31.2675 yesterday.

“All the necessary conditions for a swifter economic recovery are emerging,” Prime Minister Vladimir Putin said at a Cabinet meeting on June 2. The 14 rate cuts in as many months helped boost lending, he said.

Corporate lending grew at the fastest pace this year in May as the economic recovery gained momentum, central bank data show. Corporate loans rose 1.9 percent, compared with 0.9 percent in the previous month, Bank Rossii said in a report on its website today. Retail loans advanced 1.2 percent in May, compared with 1 percent the month before, it said. Retail deposits increased 1.7 percent, according to the report.

“The refinancing rate won’t have a significant influence because it is lowered to increase liquidity on the market,” Finance Minister Alexei Kudrin said on June 19. “There is currently a lot of liquidity. The key, fundamental factors for lending are industry risks, the potential for growth.”

Enough Liquidity

There is enough liquidity in the system as banks have 2 trillion rubles ($64 billion) of liquid assets, half of which is held in central bank bonds, Bank Rossii’s First Deputy Chairman Alexei Ulyukayev said yesterday.

Russian lending rates are “too low” and “do not reflect the real risks” in the economy, German Gref, chief executive officer of OAO Sberbank, the country’s biggest bank, said on June 1. Still, Sberbank doesn’t have immediate plans to raise the interest rates it offers on loans, according to Gref.

“Rates at the current level don’t create significant preconditions for capital inflow,” the central bank said in a statement last month.

Net capital inflow reached $10 billion in March through May and is set to continue in June, Ulyukayev said. There will be no net capital inflow for the year as a whole, after a $52.4 billion outflow last year, according to government estimates.

Commitment

Bank Rossii’s “commitment” to a flexible exchange rate and free capital movement means inflows will make the ruble’s appreciation “inevitable,” ING Groep NV analyst Stanislav Ponomarenko said last month. The central bank has reduced the extent to which it steers the ruble to lessen the effects of currency moves on producers.

While the bank will continue to intervene on currency markets to “smooth out the volatility” of the ruble, “we will not set a target for the ruble’s nominal or real exchange rate,” Ulyukayev said yesterday.

The ruble may strengthen to 28 versus the dollar by the end of 2012 and maintain a “trend toward appreciation” in the next three years, according to a government report this month. The ruble may gain 20 percent in the next three years against the currencies of Russia’s major trading partners with the effects of inflation stripped out, the report said.

‘Real Problem’

The ruble’s appreciation “is a real problem for the Russian economy, but it’s still inevitable,” Deputy Finance Minister Dmitry Pankin said in an interview in London on June 24. “Appreciation will depend on the oil price. If the oil price is higher, there will be more pressure on ruble appreciation.”

Russia, which earns about $550 million from oil exports every day, will raise about $40 billion more in oil taxes for the budget than the government previously estimated, according to UralSib Financial Corp. calculations. The deficit is set to narrow to 5.4 percent of gross domestic product this year from 5.9 percent in 2009, the first shortfall in a decade.

Of the other BRIC countries, Brazil’s central bank on April 28 became the first in Latin America to increase borrowing costs in more than a year, raising the Selic rate to 9.5 percent from 8.75 percent. China and India have increased reserve requirements for banks to avoid stoking unsustainable lending. Russia suffered a deeper recession than Brazil with a record 7.9 percent economic contraction last year. That compares with China’s growth of about 9 percent and India’s 7.2 percent.