New reduction of refinancing rate

On December 25, 2009 the Bank of Russia has announced that since December 28 the refinancing rate is again declined from 9% to 8,75% per annum. 


Simultaneously, the RF Central Bank has decreased by 0,25 p.p. the interest rates on instruments of liquidity to the banking sector and the deposits attracted from credit agencies. It is said in a press release of the Bank of Russia that the reason for the decline was a steady reduction of inflation, as well as the need to encourage credit activity of commercial banks. Moreover, the RF Central Bank noted that lower interest rates will help to reduce the volume of the short-term capital.

Thus, the Bank of Russia for the tenth consecutive time has mitigated the interest rate policy. This step is aimed to encourage its credit, and hence, domestic economic policy, as well as to discourage the inflow of short-term capital.

A key factor enabling the Bank of Russia to cut down interest rates is a slowdown in the inflation as compared with the previous year. However, after three months of stagnation, consumer prices have demonstrated some growth as a result of November. Moreover, from December 1 to 21, the CPI reached 0.4%, which is still less than the indicator of the same period in the previous year (0.5%), but the gap has been reduced to a minimum. Large-scale budget spending, traditionally happening at the end of the year, also could accelerate inflation in 2010. In annual terms, in the coming months the inflation will likely continue to decline, but its potential for slowing down is almost exhausted. In this situation, further mitigation of monetary policy seems not quite justified.

P.V. Trunin - Ph.D., Head of Laboratory for Monetary and Credit Policy