The Bank of Russia Expands Opportunities for Refinancing of Banks

On 29 March, the RF Central Bank announced that, in accordance with the decision of the Monetary Policy Committee, it would resume auction-based allocation of Lombard credits and direct repo auctions for 12 months.

It should be reminded that as the RF economy recovered from the 2008-2009 economic crises, the Bank of Russia gradually rolled back its anti-crises measures designed to prop up the banking system. This bank-bailout policy included the suspension, by the Bank of Russia, of direct repo auctions and Lombard credit auctions for 12 months, put into effect in April 2010.

However, the reduction in the RF Central Bank's interference in the functioning of the foreign-exchange market and the resulting decline in the Bank's foreign currency interventions caused a considerable shrinkage of its influence on the money base of the monetization channel of Russia's balance of payments. In due course, this development gave rise to the issue of bank refinancing extension, on the part of the RF Central Bank, for the purpose of maintaining money supply at an adequate level. One of the methods for solving this issue is to increase the periods of the Bank of Russia's credits extended to banks.

Thus, the RF Central Bank's decision of 29 March 2012 can be considered justified. At the same time we cannot support the demand put forth by a number of Russia's biggest banks that the RF Central Bank should either provide long-term unsecured credits to commercial banks or considerably mitigate its collateral security requirements towards credits. In our view, in order to prevent the emergence of "bubbles" and to exercise control over risks, the RF Central Bank should predominantly grant secured credits.

P. V. Trunin, Candidate of Economics, Head of the Monetary Policy Department