Bank of Russia announced new reduction of refinancing rate

 

Simultaneously, the RF Central Bank has decreased by 0.25 p.p. the interest rates on instruments of liquidity to the banking sector and the deposits attracted from credit agencies. According to a press release of the Bank of Russia, the reason for the decline was a steady reduction of inflation, as well as the need to encourage credit activity of commercial banks. Moreover, the RF Central Bank noted that lower interest rates will help to reduce the volume of the short-term foreign capital.

Thus, the Bank of Russia for the eleventh time in a row has mitigated the interest rate policy. This step is aimed at encouraging crediting, and hence, domestic economic activity, as well as at discouraging the inflow of short-term capital.

A key factor enabling the Bank of Russia to cut down interest rates is a slowdown in the inflation as compared with the previous year. For instance, as a result of January 2010 the CPI made 8.1% in annual terms. However the renewed growth of the money supply and the economic recovery can result in the inflation changing the decrease trend in 2010. In such a situation the potential for further decrease of rates hardly exceeds 0.5-1.0 p.p.

Besides, it seems highly possible that at present it is not high costs of resources for commercial banks that lim it the real sector crediting but rather uncertainty concerning financial situation of companies and further economic development

P.V. Trunin - PhD, Head of Department of Monetary Policy