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 14 September 2011 the Board of Directors of the Bank of Russia decided to keep the refinancing rate unchanged; and starting from 15 September 2011 to increase interest rates on the Bank of Russia deposit operations by 0.25 percentage points and to reduce interest rates on certain liquidity provision 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 risks to the sustainability of economic growth, including those associated with the uncertainty of the outlook for global economic activity, as well as of current money market conditions and the dynamics of the factors affecting banking sector liquidity. Implemented decision aimed at narrowing the gap between interest rates on the Bank of Russia liquidity provision and absorption operations should contribute to restrain money market interest rates volatility regarding the risks of the shortage of the rouble liquidity in the banking sector.

The pace of inflation continued to decrease and as of 5 September 2011 reached 8.0% over year ago (8.2% in August, 9.0% in July). The disinflation was still largely driven by prices on certain categories of food products. Favourable harvest forecasts for main agricultural products combined with the decline in the inflation expectations could contribute to the reduction of the corresponding inflation risks. Meanwhile the annual rate of service and non-food price inflation continues to pick up.

In July positive developments in economic activity persisted: industrial production and fixed capital investment continued to grow broadly in line with the previous months trends. Meanwhile the unemployment rate slightly increased, and this change was only partly explained by the seasonal effects. Relatively low levels of economic confidence indicators reflect the remaining risks to growth sustainability.

The probable decline in the propensity to save implied by continuing slowdown in the household deposit growth and faster growth in consumer credit could result in higher level of economic activity but may also be a source of additional inflation pressure.

Considering recent domestic and international macroeconomic developments and the effect of the monetary policy measures, implemented in recent months, the Bank of Russia judged that the current level of money market interest rates is appropriate to balance the inflationary risks and the risks of economic growth slowdown in the nearest future.

The next meting of the Board of Directors on monetary policy issues is planned to be held in the last decade of October 2011.

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

The reference to the Press Service is mandatory if you intend to use this material.