The Bank of Russia has left unchanged its rate of refinancing

On 14 September, the Board of Directors of the Bank of Russia decided to keep the refinancing rate unchanged, but reduced by 0.25 percentage points its interest rates on certain liquidity provision operations on the open market (Lombard and REPO auctions), as well as for a majority of standing facilities (Lombard loans, direct REPO operations, loans secured by gold, non-marketable assets and guarantees).

At the same time, the Bank of Russia increased interest rates on deposit operations by 0.25 percentage points, thus narrowing the spread between interest rates on loans and deposits, which is intended to promote the efficacy of the Bank's interest rate policy.

By resorting to these measures, the Bank of Russia responded to the recent slowdown in economic activity across the Russian Federation, which occurs against the backdrop of an ongoing decline of the inflation rate. It should be reminded that the seasonal decline of prices of foodstuffs resulted in the inflation rate's drop below 8 % in per annum terms. Besides, the growth rate of money supply in the Russian Federation since late 2010 - early 2011 has also slackened, thus bringing down monetary inflation. On the other hand, the rate of economic growth remains low. Besides, the reduction of interest rates on liquidity provision operations could be caused by the increasing tension on the world financial market, being the RF CB's way of demonstrating its readiness to support Russia's banking system.

We believe that the Bank of Russia's policy aimed at narrowing the spread between interest rates on its liquidity provision and absorption operations is an absolutely correct approach that results in boosting the efficiency of such operations. In addition, we do not think that at the present moment any further lowering of interest rates could indeed be feasible. At the same time, in case of any problems in the financial sector of Russia's national economy, the Bank of Russia must be ready at a moment's notice to provide the banking system with liquidity.

P.V. Trunin - Candidate of Economic Sciences, Head of the Monetary Policy Department