Bank of Russia Raises the Refinancing Rate

Since December 1, 2008, the CBR has raised its refinancing rate from 12% to 13% annualized. In addition, the CBR has increased interest rates on its loans at 0.5-1 p.p.
Meanwhile, the interest rate on overnight forex swap transactions (the Ruble-denominated part) has been raised from 10 to 12% annualized, while interest rates on the commercial banks’ deposits with the CBR were raised at 1p.p.

So, the CBR continues its move to tighten the monetary and credit policy. As a reminder, back on 12 November, the Bank of Russia in the same vein already raised its interest rates. It is worth noting that it has been just recently that CBR has been vigorously lowering interest rates on its loans for the sake of stabilization of the situation on the national financial market. However, commercial banks were keen to spend these loans to buy foreign exchange, which fueled pressure on the Ruble and once again caused liquidity shortages in the national banking system. As a result, the CBR has decided to fight capital flight by boosting up yields rates of the Ruble-denominated assets and increasing costs of the forex swap transactions. Meantime, in the conditions of the continuous price downfall for energy sources, these measures are unlikely to steer a considerable contraction of the volume of the capital flight and lower pressure on the national currency.

P. Trounin, Head of the Department of Monetary and Credit Policy