April 20, 2018 / 11:41 AM / a year ago

UPDATE 1-Russia c.bank warns of higher inflation week before rate meeting

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MOSCOW, April 20 (Reuters) - The weakening in the rouble could spur inflation and inflationary expectations, the Russian central bank said on Friday, sending another signal to the market that the scope for rate cuts at a board meeting next week looks limited for now.

The new round of U.S. sanctions against Moscow sent the rouble to its weakest level since 2016 earlier in April, raising concerns that the weaker currency would soon translate into rising prices.

“In the future, (exchange) rate volatility that increased because of the sanctions could lead to a temporary increase in inflationary expectations,” the central bank said in a monthly report.

The central bank said inflationary expectations among households declined to an all-time low of 7.8 percent in April, though a survey had been carried out in the week to April 9 - before the impact of U.S. sanctions on the rouble.

The report comes one week before the central bank’s next rate meeting scheduled for April 27.

The bank’s First Deputy Governor Ksenia Yudayeva said earlier this week that the likelihood of a rate cut this month had declined following the U.S. sanctions.

The central bank last trimmed its key rate to 7.25 percent in March, saying more cuts were in the pipeline as inflation hovered below its four-percent target. In March, annual inflation was at 2.4 percent.

On Friday, the central bank also said the headline inflation reading will not exceed the targeted 4.0 percent level this year, even though inflation is likely to accelerate towards the target sooner than previously expected. (Reporting by Andrey Ostroukh and Polina Nikolskaya Writing by Andrey Ostroukh Editing by Richard Balmforth)

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