More intensive cut in interest rates was an undefended measure

On April 2, the Bank of Russia decided to leave unchanged its refinancing rate as well as most of interest rates on principal operations.


At the same time, interest rates on a few of long-term refinancing operations were reduced by на 0.25 p.p. on April 3, namely interest rates on loans secured by gold, non-market assets or sureties, as well as minimum interest rates at liquidity providing auctions for 3 and 12 months. Thus, indeed, Central Bank of Russia снизил its interest rates, but it should be noted that rates on the principal refinancing tool – overnight repo – remained unchanged.

Therefore, the changes that the Central Bank of Russia made to interest rates are first of all intended to enhance effectiveness of its interest rate policy by narrowing the interest rate corridor, thereby helping the Bank of Russia influence financial markets. It is to be recalled that interest rates on deposit operations with the Central Bank of Russia play an important role in setting interest rates in the interbank lending market in the period of excessive liquidity, whereas interest rates on Central Bank’s operations on providing liquidity to banks play the same role in periods of liquidity deficit. Gradual narrowing of the spread between rates on liquidity provision and absorption allows the Bank of Russia to more efficiently manage market interest rates.

In addition, the Central Bank of Russia responded to economic slowdown by relaxing its policy. In our opinion, more active cut in interest rates is hardly reasonable in response to low unemployment rate and fairly high level of inflation.

Trunin P.V. – Ph.D. in Economics, Head of Monetary Policy Department