Top critics challenge Russian central bank, point to China's rate cuts

By Gleb Bryanski

MOSCOW (Reuters) - The Russian central bank's independence is set to be tested as it prepares to hike interest rates on Friday amid growing pressure from opponents - including Russia's most influential corporate executive Igor Sechin - who says it should take cues from China.

A Reuters poll of analysts predicts the regulator will raise the benchmark interest rate by 200 basis points to 18% to tame inflation and cool an overheated economy.

That would be the highest level since April 2022, when the rate reached 20% amid market turmoil after the Kremlin sent troops into Ukraine in what it calls a "special military operation".

The central bank has already stated that Friday's meeting will focus on how much - not whether - it should raise rates, a stance which prompted a backlash.

Sechin, head of energy giant Rosneft, pointed to the Chinese central bank's surprise move this week to cut several benchmark interest rates, portraying it as a goodwill gesture towards corporate borrowers aimed at boosting growth.

"We hope for similar steps for Russian prime borrowers from the Bank of Russia," Sechin said. His comments came during the "silent week" ahead of the rate decision, a period when policymakers generally refrain from public comments.

His remarks also indicate how Russian markets are increasingly looking to China for policy signals. Before the military action in Ukraine led to a deterioration in relations, they took their guidance from regulators and markets in the West, where most of the investment came from.

Under Governor Elvira Nabiullina, the central bank has maintained its independence and its prudent policy has been praised by Putin. Insiders say that Putin trusts Nabiullina with monetary policy decisions.

The Russian central bank asserts that fighting inflation, currently running at an annual rate of over 9%, and addressing economic overheating are its ultimate priorities.

Apart from inflation, Russia has entered a wage growth spiral fuelled by generous payments for volunteers to fight in Ukraine and defence sector workers. It is also suffering from acute labour shortages in many sectors.

The central bank's policy has helped Russia cope with the impact of Western economic sanctions, but critics argue that the regulator is stifling economic growth, which has just recovered to a rate of 5%.

Anatoly Aksakov, the influential head of the lower house of parliament's banking committee, said that annual inflation rates are set to fall in the second part of this year, as they were higher in the second half of last year than in the first half.

"I hope that this factor will influence the central bank's decision. We need relatively cheap credit to come to the economy; we need structural change," he said.

Aksakov, whose committee handles all monetary regulation requiring parliament's approval, argued that in his view, the central bank could keep interest rates unchanged. The latest weekly data showed a slight slowing of inflation rates.

Influential think-tank TsMAKP, which advises the government, accused the central bank of "forcing stagnation" onto the economy, saying its policy discourages investment in the real economy.

"Negative and systemic risks from such an action (rate hike) are likely to outweigh the positive effects," said the head of TsMAKP Dmitry Belousov, who is an economist and brother of Russia's new defence minister.

(Reporting by Gleb Bryanski; Editing by Toby Chopra)