The Bank of Russia Has Increased the Norms of Mandatory Reserves

On 31 January 2011, the Board of Directors of the Bank of Russia once again adopted a decision that the interest rates established by the RF CB for liquidity provision operations should remain at their existing level.

At the same time, the Bank of Russia increased the norms of mandatory reserves with regard to

credit institutions’ liabilities to non-resident legal persons, denominated in the currency of the Russian Federation or in a foreign currency, from 2.5 to 3.5%;
credit institutions’ liabilities to natural persons and other liabilities thereof, denominated in the currency of the Russian Federation or in a foreign currency, from 2.5 to 3.0%.

Thus, the RF CB has finally responded to the rise in inflation caused by the negative supply shock (triggered by the drought) in 2010 and by a number of monetary factors. It is noteworthy that the norms regarding liabilities to non-residents were increased more significantly than the norms regarding other liabilities. By doing so, the Bank of Russia tries to prevent a possible inflow of short-term capital caused by the continuing climb in oil prices. In our view, the need to toughen monetary policy has been felt for a long time, but so far this measure has been insufficient for slowing down the rate of inflation which, according to our estimates, in 2011 is likely to climb even higher than in 2010.

P.V. Trunin, Candidate of Economic Sciences, Head of Monetary Policy Department