The Bank of Russia Has Extended the Timelines for the Increase of Rates of Deductions to the CDF

On April 23, 2009, the Board of Directors of the Bank of Russia has ruled to extend the timelines for the stage-by-stage increase of the effective rates of contributions to the Compulsory Deductions Fund (CDF).

As a reminder, since October 15, 2008, the CBR lowered them: the rates were set at the level of 0.5% by all kinds of reserved liabilities. At the time, it was announced that the rates were lowered just for a certain period of time – they were to be raised up to 1.5% since February 1, 2009 and further to 2.5% since March 1, 2009, later, on January 19, 2009 the CBR decided to put off the said timelines for May 1 and June 1, 2009, respectively. According to the last ruling, the rates will be raised by stages a t 0.5 p.p. on May 1, June 1, July 1 and August 1, to reach the preset value of 2.5% by August 1, 2009.

As before, this decision was guided by the complex situation in the domestic financial sector engendered by the global financial crisis. Russian credit organizations should shortly face a rapid rise of overdue debts by their loans, which will aggravate their financial standing. Should their liquidity be withdrawn in the form of contributions to the CDF, it would give rise to a financial instability. We think that if in the summer the banking sector exhibits no explicit signs of improvement, the timelines for the increase of compulsory reservation rates may be extended once again.

P. Trounin, Head, Department for Monetary and Credit Policy