Bank of Russia Reduced Refinancing Rate Once Again

On June 4, 2009 the Bank of Russia announced that starting with June, 5th the refinancing rate is reduced from 12% to 11.5% per annum. At the same time the Bank of Russia decreased the interest rates on the instruments designed to supply the banking sector with the liquidity and the interest rates on the deposits attracted from the crediting institutions.

Thus, the Bank of Russia has softened the interest rate policy for the third time over the last one and a half month after having increased interest rates in autumn-winter period despite the difficulties with the liquidity in the banking sector at that time in order to reduce the downward pressure on the ruble. At present the liquidity in the banking sector is at an acceptable level whereas the crediting of the real sector is slowing dramatically. It should be noted that in May the inflation made only 0.6% as compared with 1.4% in the corresponding period of the previous year. The slow-down of the inflation has allowed the Bank of Russia to reduce the cost of resources supplied to commercial banks leaving the interest rates in real terms at approximately the same level.
The reduction of the downward pressure on ruble which was due to the recovery of prices for the main goods of the Russian export and the stabilization of the economic situation in the world has also contributed to the reduction of the interest rates. If the inflation slows down further, the Bank of Russia might decrease interest rates once again.

P.V. Trunin, PhD, Head of the Department for Monetary and Crediting Policy