The Bank of Russia once again lowered its rate of refinancing

On 14 September 2009, the Bank of Russia declared that, from 15 September, the rate of refinancing would be once again lowered from 10.75% to 10.5% per annum.

At the same time, the RF CB lowered by 0.25 p.p. the interest rates on the instruments designed to supply the banking sector with liquidity and the the interest rates on deposits attracted from credit institutions. It should be noted that this time the RF CB, simultaneously with its decision to lower the refinancing and interest rates, posted some comments on this decision to its website. In particular, in the Bank of Russia’s press release it is noted that the reason for lowering the rate of refinancing was the stable downward trend displayed by the inflation rate, as well as the necessity of creating incentives for the crediting activity of commercial banks.

Thus, the Bank of Russia for the sixth time softened its interest rate policy. This step has been taken in order to promote crediting – and so, inevitably, to stimulate overall economic activity. Although this measure is compatible with international experience in the area of anti-crisis policies, we believe that the prospects for further decline of the inflation rate in the next few months remains questionable.

Besides, in autumn the prices for fruit and vegetable products will once again begin to rise. In such a situation it can be argued that the potential for lowering the RF CB’s rates has so far been nearly exhausted. However, we believe that the Bank of Russia may still resort to further lowering its rates, so as to promote a revival of crediting activity. At the same time, we believe that revived crediting activity will be the result of an improved situation in the real sector, and not its cause.

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