The Bank of Russia Has Raised the Refinancing Rate to 8%

On 25 February the Board of Directors of the Bank of Russia took a decision to raise the refinancing rate from 7.7% up to 8% annually and to raise at the same amount of the CB’s interest rate on the operations on provision and adsorption of liquidity to the credit organizations.

Let’s remind that the last time the CB of Russia changed the interest rates was on 1 June 2010 by cutting them simultaneously by 0.25 percentage points on average. Since then the interest rates remained unchanged for more than six months.

Moreover, the CB of Russia increased the norms of compulsory reserves from 1 March:

on liabilities of credit organizations before the legal entities-non residents in the RF currency and in foreign currency – from 3.5% up to 4.5%;
on liabilities before the individual persons and other liabilities of credit organizations in the RF currency and in foreign currency – from 3% up to 3.5%.

On 31 January the CB of Russia raised the norms of compulsory reserves by 1 percentage point on the liabilities before legal entities-non residents and by 0.5% on other liabilities.

Thus the Central Bank of Russia has reacted to the ongoing inflations growth, which in February actually reached 10% annual. Let’s note that political events in Africa and the Middle East have brought about a new price growth on crude oil, which may bring about additional amounts of foreign currency to the Russian Federation and in the event the Central Bank goes on buying foreign currency into its international reserves may cause new inflation growth.

To our mind, that in these circumstances the Central Bank of Russia should to restrict its operations on the currency market in order to prevent a surge of money supply. Moreover, further steps directed at tightening the monetary policy for holding back inflation

P.V. Trunin, Candidate of Sciences (Economics) Head of Monetary Department