The Bank of Russia once again lowers its rate of refinancing

On 10 July 2009, the Bank of Russia declared that, from 13 June, the rate of refinancing would be once again lowered from 11.5 % to 11 % per annum. At the same time, the RF CB lowered by the same percentage the interest rates on the instruments designed to supply the banking sector with liquidity and the interest rates on deposits attracted from credit institutions.

It should be noted, however, that this time the RF CB, alongside the announcement of its decision concerning the lowering of the refinancing and interest rates, has posted to its website a somewhat more detailed commentary on its decision. In particular, in the Bank of Russia’s press release it is noted that the reason for lowering the rate of refinancing was the marked slowdown in economic activity in 2009, while at the same time the interest rates on bank credits issued to the non-financial sector remained at a high level. Besides, the RF CB specified that it had become possible to lower the interest rates due to the declining inflation rate and the stable situation on the currency market.

Thus, the Bank of Russia for the fourth time softened its interest rate policy. This step has been taken in order to promote crediting – and so, inevitably, to stimulate overall economic activity. In principle, this measure is compatible with the international experience in anti-crisis policies. We believe that the downward trend displayed by the inflation rate in recent months may soon enough disappear – mostly because of the substantial budget expenditures on anti-crisis measures. Besides, any dramatic drop in oil prices may yet again cause a stable decline of the ruble’s exchange rate. In other words, it can be said that the RF CB’s potential for further lowering its interest rates has been nearly exhausted.

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