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 2 April 2013 the Board of Directors of the Bank of Russia decided to maintain unchanged the refinancing rate and the interest rates on the Bank of Russia main liquidity provision and absorption operations and to reduce effective from 3 April 2013 the interest rates on certain longer-term refinancing operations by 0.25 percentage points (table “Interest rates on the Bank of Russia operations”).

The decision was supported by the assessment of inflation risks and economic growth prospects. This cut in the interest rates on liquidity provision operations will not have any significant impact on the level of money market interest rates. However, it will bring the cost of obtaining liquidity from the Bank of Russia by credit institutions closer to the interest rates on the Bank of Russia main liquidity provision operations, which will contribute to strengthening the interest rate channel of the monetary policy transmission mechanism.

In March the rate of inflation remained above the target range and as of 25 March 2013 was estimated at 7.2% over a year ago. Current pace of inflation is mainly explained by the food prices growth and the dynamics of certain regulated prices and tariffs. The inflation rate staying above the target range for a prolonged period of time may affect economic agents’ expectations and thus poses inflation risks, in particular taking into account the planned increases in the natural monopolies’ tariffs. However, according to the Bank of Russia projections based on the assumptions of maintaining the current monetary policy stance, stable inflation expectations and absent adverse food prices shocks, the rate of inflation will return to the target range in the second half of 2013.

The dynamics of the key macroeconomic indicators in February 2013 pointed to a continuing deceleration of economic growth and increased risks of economy slowing down. The growth rates of investment in production capacity remained subdued. The decrease in retail sales growth and industrial production continued. Against this background economic confidence indicators are gradually deteriorating. At the same time, labour market conditions and credit dynamic still provide support to the domestic demand.

The Bank of Russia will continue to monitor inflation risks and the risks of the economy slowing down. In making monetary policy decisions the Bank of Russia will be guided by the inflation goals and economic growth prospects.

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 May 2013.

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