The Bank of Russia Suspends the Direct Fixed-Rate REPO Operations

On April 17, 2009, the Bank of Russia announced that the direct fixed-rate REPO operations with the term of 1 week will be suspended effective as of May 1, 2009.

In addition, since the same date, while identifying the cut-off rate at the first direct REPO auction (overnight), applications submitted at a rate of greater than, or equaling the fixed-rate REPO rate will not be accounted in the limit on a maximum volume of cash for a given auction. The said applications will be satisfied in a full volume.

Thus, the Bank of Russia continues to pursue the policy aimed at a gradual reduction in liquidity supply to the banking system. Meanwhile, the decisions compel commercial banks in need for liquidity to take credits at higher rates.

We believe this policy is justifiable in the conditions of a growing budget deficit, and it is aimed at blocking acceleration of growth of money supply, which may fuel inflation and trigger a further depreciation of the Ruble.

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