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 23 December 2011 the Board of Directors of the Bank of Russia decided to reduce starting from 26 December 2011 the refinancing rate and interest rates on certain lending standing facilities by 0.25 percentage points and to raise interest rates on the Bank of Russia deposit standing facilities by 0.25 percentage points (table “Interest rates on the Bank of Russia operations”).

The said decision was made considering the assessment of inflation risks and risks to the sustainability of economic growth, including those associated with the global economic uncertainty. Narrowing of the gap between interest rates on the Bank of Russia liquidity providing and absorbing operations is neutral in terms of monetary policy stance. It should contribute to restraining money market rates volatility and strengthening of the interest rate channel of monetary policy transmission to inflation.

In the past month inflation rate retained its downward tendency and as of 19 December 2011 reached 6.4% over year ago (6.8% in November). Considering the planned deferment of an increase in regulated prices and tariffs until the middle of 2012 the Bank of Russia expects inflation to fall significantly early next year. However, in making monetary policy decisions it will take into account the temporality of this effect and rely on medium-term inflation forecasts. The tightening of monetary conditions since September resulting from the transition to the shortage of liquidity in the banking sector should support the achievement of next year’s inflation target.

The dynamics of the main macroeconomic indicators in November showed persistent firmness of consumption beside the moderate production growth figures. Industrial production growth rates remained rather low alongside a somewhat weaker growth of investment in production capacity. Meanwhile, the rate of unemployment declined and the growth rate of real wages and retail sales was still high.

Considering recent domestic and international macroeconomic developments the Bank of Russia judged that the current level of money market interest rates within the interest rate corridor was appropriate to balance the inflationary risks and the risks of economic growth slowdown. The Bank of Russia will continue to monitor money market conditions and external economic developments, and to assess the risks and consequences of an increase in market interest rates.

The next meeting of the Board of Directors on monetary policy issues is planned to be held in the first decade of February 2012.

Interest rates on the Bank of Russia operations
(% p.a.)

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