The Board of Directors’ Decision on the Bank of Russia Interest Rates (Unofficial translation)

The Bank of Russia External and Public Relations Department informs that on June 30, 2011 the Board of Directors of the Bank of Russia decided to keep unchanged the refinancing rate and interest rates on the Bank of Russia operations.

The decision was supported by the assessment of inflationary risks and risks to the sustainability of economic growth, including those associated with increasing uncertainty of the external economic situation development.

As of June 27, 2011 the inflation rate in annual terms amounted to 9.4% (9.6% in May). The pace of consumer prices growth moderated in June compared with the previous month that was mainly due to deceleration of growth of certain food prices.

In June the strong increase of bank credit to households continued as well as the slowdown in households deposits’ growth indicating that the savings rate was likely to decline. This change could result in both an economic activity growth and an increase of inflationary risks. At the same time, the current trend of gradual slowdown in money supply could contribute to the reduction of the inflationary pressure associated with monetary factors.

The trends in macroeconomic indicators’ dynamics formed in previous months persisted in June indicating the remaining risks to the sustainability of economic growth. The deceleration of industrial production annual growth rate continued as well as the reduction of the real disposable incomes of the households. The unemployment rate decreased significantly, though to a great extent due to the seasonal effects. Meanwhile, the retail sales showed sustainable growth. Investment activity growth in annual terms continued to restore after the sharp drop in the beginning of 2011, however this positive movement could not yet be considered as a consistent trend.

Considering current domestic and external economic conditions and the effect of the monetary policy measures, implemented in recent months, the Bank of Russia judged that the current level of interest rates is appropriate for coming months to balance the remaining inflationary risks and the risks of economic growth slowdown.

The next meting of the Board of Directors on monetary policy issues is planned to be held in the beginning of August, 2011.

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