Monetary policy easing will end up with no very positive results

On July 12, a regular meeting of Bank of Russia's Board of Directors left Central Bank's interest rates unchanged, while the Bank of Russia announced the introduction of a new instrument of refinancing in the banking system - auctions on 12-month loans secured by non-market assets or guarantees.

A press conference was held for the first time on the results of the meeting, at the Central Bank announced a limit of Rb 500bn on the first auction scheduled for July 29. The new instrument is designed to reallocate refinancing volumes in favor of longer-term instruments rather than their increase.

Therefore, limits on overnight repo auctions may be reduced by a matching value. Minimum interest rate on the new refinancing instrument will be 5.75% p.a., i.e. it will be as little as 0.25 p.p. beyond the minimum interest rate on overnight repo auctions. In addition, the Central Bank of Russia promised that it would promptly perform collateral appraisal.

It should be noted that investment potential of the new instrument for banks would depend largely upon collateral appraisal procedures and respective discounts. In general, indeed, the refinancing framework can be changed in favor of long-term instruments, however, we believe that monetary policy easing would end up with no very positive results, given the current macroeconomic situation, high level of employment and inflation. Moreover, creation of "long" monies in the economy is the task to be accomplished by the financial system rather than the central bank, i.e. most efficient ways of stimulating economic activity will be mitigation of inflation risks, development of institutional environment and enhancement of financial sector's depth.

P. V. Trunin, PhD in Economics, Head of Monetary Policy Department