The Bank of Russia raised the refinancing rate to 8.25%

On 29 April the Board of Directors of the Bank of Russia decided to raise the refinancing rate fr om 8% to 8,25% annual and by the same amount the majority of interests rates of CBR operations of provision and adsorption of liquidity for credit institutions.

The interest rates on Lombard loans and direct repo transactions at fixed rates remained at the same level. Recall that the last time the Bank of Russia adjusted interest rates on Feb. 25, 2011, by raising them simultaneously by 0.2 percentage points on average. Thus, the CBR continued to tighten its monetary policy. This rate hike was the second this year. In addition, the Bank of Russia already three times in 2011 increased mandatory cash reserve ratio.

With the help of the measures the Bank of Russia has reacted to the continued acceleration of inflation, which in January - April amounted to 9.7% in annual terms. During the first four months of 2011 the CPI reached 4.3% despite the fact that the CBR intends to keep inflation within 7 – 7.5%. Continuing high world oil prices contribute to the monetary component of inflation, as well as to the more expensive food in world markets.

We believe that in this situation the CBR needs to lim it its operations in the foreign exchange market in order to prevent a sharp spike in the money supply. Moreover, further steps to tighten monetary policy may be required to curb inflation.

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