The RF CB makes a pause in the downward movement of its rates

On 30 June, 2010 the Bank of Russia’s Board of Directors made the decision that the rate of refinancing and other interest rates established by the RF CB should be kept at their existing level, thus making a pause in their downward movement.

It should be reminded that since the end of the year 2008 the rate of refinancing was gradually lowered from 13 % to 7.75 % per annum. In the Bank of Russia’s announcement it is noted that at present the Russian Federation experiences a revival of crediting and economic activity, while the inflation rate continues to decelerate – although this slowdown has become less speedy than before.

We believe that the discontinuation of the lowering of the RF CB’s rates has been a timely decision. Rapid growth of money supply in early 2010 coupled with the disappearance of the base effect will inevitably result in a more rapid per annum inflation rate growth in the second half-year. At the same time, the currently low level of interest rates encourages credit institutions to take some additional risks – notwithstanding the fact that the economic situation in the RF is still far from being truly favorable. In such a situation any further softening of the monetary policy may have had a negative effect on the macroeconomic stability in this country.

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