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 10 August 2012 the Board of Directors of the Bank of Russia decided to maintain the refinancing rate and the interest rates on the Bank of Russia operations unchanged (table “Interest rates on the Bank of Russia operations”).

The decision was supported by the assessment of inflation risks and economic growth prospects, taking into account the global economic uncertainty and the observed tightening of domestic monetary conditions.

In July and in the beginning of August inflation increased, but stays in the target range for 2012: as of 6 of August the pace of inflation was estimated at 5.7% over a year ago. Core inflation in August registered a minor change and amounted to 5.3%. Higher pace of inflation was attributed to the planned increase in the majority of regulated prices and tariffs as well as the accelerated growth of the food prices. The worsening of the food market conditions in Russia and globally as well as the downward revision of this year’s crop harvest are the important sources of inflation risks, particularly taking into account their influence on inflation expectations.

According to the Bank of Russia estimates, gross output remains close to its potential level, which implies an absence of significant demand-pull price pressures. Production in manufacturing in the second quarter of the year was high, while consumer and producer confidence indicators remained fairly strong. Taking this into account the Bank of Russia does not consider the deceleration of growth in industrial production in June as indicating higher risks of economic slowdown. Retail sales growth rate remains high, while labour market conditions together with household credit expansion continue to support robust domestic demand. Still in the recent months there were signs of the stabilization of the growth rates of credit to non-financial organizations and individuals on the back of the increasing interest rates in the economy which the Bank of Russia associates with the spreading of the effects of the money market rates increase resulting from the steady banking sector demand on the Bank of Russia refinancing operations.

The Bank of Russia will continue to monitor inflation risks, the influence of global economic developments and the consequences of the observed tightening of monetary conditions on the Russian economy. In making monetary policy decisions the Bank of Russia will rely on medium-term inflation goals and economic growth prospects, as well as the dynamics of inflation expectations.

The next meeting of the Board of Directors of the Bank of Russia on monetary policy issues is planned to be held in the first half of September 2012.

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

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