Russian central bank, fearing inflation, keeps key rate high

Russia's central bank on Friday kept its key rate steady as inflation fears outweighed any temptation to use recent ruble strength as an opportunity for a rate cut in a bid to help the economy.

Boosted by a budding recovery in the price of oil, of which Russia is a main producer, the ruble had prior to the announcement crept back up to a 2016 high after slumping on the back of falling oil prices. It was trading at around 68 to the dollar and 76.5 to the euro on Friday.

A stronger currency typically dampens inflationary pressures as imports become cheaper, but the central bank let caution prevail.

"Despite certain stabilisation in financial and commodity markets and a slowdown in inflation, inflation risks remain high," it said in a statement following a regular board meeting.

The ruble's slide at the beginning of this year caused the central bank to stall on its policy of gradual reductions in the base rate, which it cut four times last year from a high of 17 percent to the current 11 percent.

The bank went for a mammoth rate hike in December 2014 as it battled to stave off a collapse in the currency due to a battered economy.

The reduction in the rate since has done little to help Russia's recession-hit economy, hurting from a the effects of the oil price slump and Western sanctions over Ukraine.

Despite a desperate need to nudge on an economic recovery, the Bank of Russia warned that it is unlikely to cut the rates again in the near future.

"To enable the accomplishment of inflation targets, the Bank of Russia may conduct its moderately tight monetary policy for a more prolonged time than previously planned," the bank said in its statement.

Alfa Bank said that the warning was "more hawkish" than expected as the central bank battles to reach its goals for inflation.

Capital Economics said the statement suggested that future interest cuts are "only likely to come towards the end of the year. And even then, interest rate cuts are likely to be relatively modest".

Oil prices have firmed slightly recently on hopes key producers will agree next month to limit output amid a global supply glut, thus helping the ruble.