Russian central bank warns of oil price risks as it defends high rates.

Russia’s central bank defended its tight monetary policy in a report on Wednesday, saying high rates had contributed to a slowdown in lending and fostered signs of disinflation, but pointed to low oil prices as a key risk for the Russian economy.

The central bank, battling stubbornly high inflation, has stood firm for months against growing pressure to ease borrowing costs, with critical companies cutting investment plans and the government bemoaning slowing economic growth.

“Tight monetary policy is a temporary factor, necessary for a sustainable reduction in inflation,” the bank, which has held its key interest rate at 21% since October, said in a financial stability review.

Soaring military spending in the last two years has generated economic growth but fuelled inflation, causing overheating that the central bank has sought to cool with high rates. Russia’s growth domestic product growth slowed to 1.4% in the first quarter, from 4.5% a quarter earlier.

External conditions remain difficult, the bank said, pointing to risks from global market volatility, trade wars and the prospect of increased sanctions against Moscow.

The bank said increased credit restructuring by large and medium-sized Russian companies at the end of March was a temporary trend, expressing confidence that a majority of firms was resilient to interest rate risk.

Source: Investing