The Bank of Russia has raised the refinancing rate

Since November 12, 2008, the Bank of Russia has raised the refinancing rate from 11 to 12% annualized.

In addition, CBR raised interest rates on its loans at 0.5-1 p.p. Meanwhile, the interest rate by overnight forex swaps transactions (its Ruble-denominated fraction) was raised from 10 to 12%annualized, while interest rates on commercial banks’ deposits with the CBR rose at 1.5 p.p.

So, the CBR has taken measures on tightening the monetary and credit policy. It is worth noting that it was just recently that interest rates by the Bank of Russia’s loans have been vigorously lowered, to stabilize the situation on the national financial market; however, commercial banks used these loans to buy foreign exchange, which intensified the pressure on the Ruble and once again generated liquidity shortages in the national banking system. As a result, the CBR decided to fight the capital flight by boosting up yields on the Ruble-denominated assets and raising costs of the forex swaps transactions.

Meanwhile, in the conditions of the continuous downfall in prices for energy sources, these measures are unlikely to entail a considerable contraction of the capital flight and a lower pressure on the Ruble. Besides, such moves highlight inconsistency of the Bank of Russia’s policy, which will inevitably undermine the economic agents’ confidence.

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