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PREVIEW-Russia central bank seen taking rate hike pause

* What: Russian central bank October policy meeting

* When: Friday, Oct. 5

* Eight of 12 economists expect CBR to hold

* Four economists see quarter-point hike in deposit rate

By Jason Bush and Maya Dyakina

MOSCOW, Oct 4 (Reuters) - Russia's central bank is expected to keep its key interest rates on hold at its monthly policy meeting on Friday, but most analysts expect it to resume hiking rates in the near future.

Policymakers must weigh up the conflicting problems of rising inflation and slowing economic growth. But prices are presently their foremost concern.

Official figures released on Thursday showed annual consumer price inflation jumping to 6.6 percent, well outside the central bank's 5-6 percent target range.

Last month, it raised policy rates for the first time in nine months, by a quarter point across the board. That contrasts with central banks elsewhere that are loosening monetary policy to revive flagging economies.

As a result Russia's main policy rate, the one-day fixed repo rate, now stands at 6.5 percent.

Although the inflation spike reflects the short-term impact of a poor harvest and a delayed increase in regulated utility prices, the central bank said last month that monetary factors were also playing a role, justifying tighter policy.

Its more recent rhetoric has also been hawkish.

First Deputy Chairman Alexei Ulyukayev said this week he viewed inflation risks to be more serious than those of an economic slowdown. He did not rule out raising rates this month.

Ulyukayev also said the central bank would consider narrowing its interest rate 'corridor', implying it might raise the overnight deposit rate - currently 4.25 percent - that acts as a floor for the money market.

But, despite the central bank's tough talk, a majority of analysts expect it to take a breather this month - if only to take stock of the situation before resuming rate hikes.

Eight of 12 bank analysts polled by Reuters expect the central bank to hold rates on Friday. The other four foresee a quarter-point hike in the deposit rate.

"The Central Bank of Russia has given a clear signal that monetary tightening is set to continue near term," BNP Paribas economists commented. "But a hike is likely to be postponed until November, as any food price inflation risks will become clearer in the coming weeks."

Clemens Grafe, chief Russia economist at Goldman Sachs, also expects the central bank to wait until next month before raising rates, in line with its previous behaviour.

"If you look at what they did in 2011, when they started rate hiking, they basically did it in bi-monthly intervals. Logically I think they will not hike this month - they will hike next month," he said.

WRONG MEDICINE

A further reason the central bank is likely to be cautious this month is that the most recent macroeconomic data suggests that an economic slowdown in Russia has intensified.

Some economists have criticised the bank, saying higher rates are the wrong medicine for a slowing economy.

Industrial production grew by a sluggish 2.1 percent year-on-year in August, while retail sales and investment growth also slowed significantly.

However, analysts expect that economic data to be published over the coming month will look more positive. Surveys of Russian business in September pointed to a surprisingly strong pick-up in activity.

That would make it easier for the central bank to justify an interest rate hike next month.

"They would obviously feel better about it if they see the September numbers showing something different (from previous months), and there is a good chance that they will," said Grafe.

The central bank has recently reiterated its long-term policy objective of narrowing the corridor between its deposit and lending rates, as part of its efforts to reduce volatility in money market rates.

Hiking the deposit rate would not have a major impact on market conditions, as money-market rates presently range between 5.5 and 6.0 percent, closer to the upper end of the corridor.

"In our opinion there is a high probability that the central bank may hike the deposit rate," said Anatoliy Shal, chief Russia economist at Morgan Stanley.

(Writing by Jason Bush; Editing by Douglas Busvine/Ruth Pitchford)

((jason.bush@thomsonreuters.com)(Tel: +7 495 775 1242))

Keywords: RUSSIA RATES/PREVIEW