The RF Central Bank Raises Its Interest Rates

On 13 September 2012, the Bank of Russia announced that, from 14 September onwards, it would increase its rate of refinancing by 0.25 pp - from 8% per annum to 8.25% per annum; in addition, it increases by a similar value its interest rates on operations involving liquidity supply and absorption.
That was the RF Central Bank's latest response to inflation growth in Russia. It should be reminded that, after having declined over the period of April - May 2012 to the level of 3.7% per annum, the consumer inflation rate then once again began an upward movement: as demonstrated by August's results, the CPI had risen to 6% per annum. Meanwhile, the inflation target set for the year 2012 is 6%. However, in contrast to the situation in 2011, this year the regulated government tariffs for some of the services provided to the population have been raised from 1 September onwards, thus inevitably triggering further inflation growth over the autumn months.

Thus, the main factors of the accelerating inflation rate in the first half-year of 2012 have become the increased tariffs on consumer services, as well as the rising international foodstuff prices in response to the unfavorable weather conditions in some of the countries that have become the world's major sources of agricultural produce. These factors formally do not depend on the RF Central Bank's monetary policy. However, the base inflation rate has also been on the rise over recent months, thus creating preconditions for further growth of the interest rates in a situation when the Bank of Russia has resorted to an inflation targeting policy.


We believe that this step taken by the RF Central Bank is quite correct from the point of view of the current monetary policy goals. At the same time, given the slow rate of economic growth, as well as the largely exogenous nature of inflation, the potential for increasing the interest rates any further appears to be limited.


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