The RF CB keeps its rates unchanged
On 30 July, the Bank of Russia’s Board of Directors once again (just as it did one month earlier) made the decision that the rate of refinancing and other rates established by the RF CB should be kept at their existing level. Thus the decline of the rates observed since late 2008 until the summer of 2010 was discontinued.
In the Bank of Russia’s announcement it is noted that at present in the Russian Federation there continues a revival of crediting and economic activity, while the inflation rate is becoming increasingly slower, although to a lesser extent than before. In this connection, it is stated that the volume of consumer crediting remains at a lower level than it was prior to the crisis. Thus, the Bank of Russia envisions its goal as promotion of consumer crediting alongside lowering the population savings norm.
In our opinion, this policy may produce growth of economic activity in the short and medium term, while in the long run the lowering of the savings norm will act as a factor restricting the rate of economic growth. Besides, rapid growth of consumer crediting may once again increase banks’ credit risks and produce "bubbles" on asset markets.
On the whole, we believe that the discontinuation of the downward movement of the RF CB’s rates is a timely decision. Moreover, in a situation of an increasing inflation rate - which will most probably be observed in autumn – it will be feasible to consider raising interest rates, because their currently low level encourages credit institutions to take some additional risks despite the fact that the economic situation in the RF is still far from being favorable.
P.V. Trunin – Candidate of Economic Sciences, Head of the Department for Monetary Policy