Russia, the only one of the BRIC countries (Brazil, Russia, India and China) without capital controls, is following China and Turkey in relying on reserve requirements to drain cash from the economy and avoid luring more speculative investment.
“We stand ready to continue increasing mandatory requirements, if needed,” Bank Rossii Chairman Sergey Ignatiev said in Frankfurt on Friday.
Policy makers will “act decisively to meet the forecast” for this year’s annual inflation of between 6 percent and 7 percent, he said.
The Russian central bank on Jan. 31 increased the mandatory reserve ratio while unexpectedly leaving its deposit rates unchanged after inflation last month accelerated to the fastest in 15 months. Policy makers cited the threat of rising capital inflows driven by higher oil prices.
Emerging economies are weighing the need to curb inflation against the risk of attracting speculative capital from near-zero interest rates in the US and Europe.
Consumer prices last month surged 9.6 percent from a year earlier, triggered by the worst drought in at least 50 years, while monthly inflation was 2.4 percent, the quickest in two years.
Central bankers have kept the benchmark refinancing rate at a -record-low 7.75 percent since June, opting to increase the deposit rate in December. Last week, they raised the mandatory reserve level for liabilities to 3.5 percent for non-resident companies and 3 percent for individuals and others, both from 2.5 percent.
The policy response in countries, including Turkey and Russia, is “highly unorthodox” and may lead to more aggressive rate increases as inflationary expectations mount, said Maria Gordon, a London-based emerging--market equity portfolio manager at Pacific Investment Management Co, which oversees about US$1.2 trillion.
“I would be looking for a combination of maximum fears, when the local markets will start pricing in a large degree of tightening and I would start taking positions on interest-rate sensitive stocks,” she said in an interview in Moscow on Thurdsday, without specifying companies.
Emerging markets risk a “hard landing” as they start raising interest rates to fight inflation, Nouriel Roubini, the New York University professor who predicted the credit crisis, said at a conference in Moscow on Thursday.
China set record-high reserve requirements, raising the level four times in about two months. Latin American nations from Brazil to Peru are lifting the ratios and returning to capital controls to stem a rally in their currencies.
Bank Rossii raised the reserve level for liabilities to the highest since 2008 after lowering the ratio at the height of the financial crisis that year to help lenders weather the credit squeeze. It last lifted the requirement level in August 2009.