The CBR Has Lowered its Refinancing Rate

On April 23, 2009, the CBR has lowered its refinancing rate from 13% to 12.5% annualized, effective as of April 23, 2009. In a parallel move, the CBR also lowered at an analogous rate interest rates on instruments on the liquidity supply instruments to the banking sector.

Thus, after a long break, the bank of Russia has softened its interest rate policy. As a reminder, despite a difficult situation with liquidity in the banking sector, between last autumn and winter the bank of Russia has been raising interest rates to lower the downward pressure on the Ruble. With inflation rate beginning to decelerate, interest rates began to rise in real terms. That is why by lowering them, the CBR de-facto has pushed the real interest rates to the level noted in the early-2009.

It should be noted that the CBR’s interest rates currently play an important role for credit institutions, which is why their drastic lowering may fuel a rapid expansion of money supply, depreciation of the Rb. exchange rate and renewal of growth of inflation, which still is at too high a level compared with developed economies.

So, as of today, we believe a correct policy would be the one of maintaining interest rates or their gradual decreasing.

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