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On Bank of Russia Key Rate (Unofficial translation)

14 March 2014
Press release

On 14 March 2014 the Bank of Russia Board of Directors decided to maintain the Bank of Russia key rate at 7.0 percent per annum. High inflation risks that brought about an increase in the key rate on 3 March 2014 still remain. Unstable external conditions and a rise in financial market volatility are conducive to an increase in economic uncertainty. Against this backdrop the Bank of Russia’s priority is to contain the effect of exchange rate dynamics on inflation and to maintain financial stability. Hence, the Bank of Russia does not intend to lower the key rate in the coming months.

The global economy continues to recover slowly. Persistently weak economic growth in most of Russia’s trading partners curbs demand for exports from Russia and restrains the domestic economy. Meanwhile, oil prices remain at high levels. External inflation is stable and does not exert a noticeable influence on domestic prices.

Russian economy continues to slow down. Industrial production is stagnating. Investment activity remains low amid economic uncertainty, declining profits in the real sector and tightened non-price lending conditions. Consumer demand is still the major driver of economic growth. It is supported by still high growth in retail lending. However, a decline in consumer activity is observed against the backdrop of a slower real wages growth and of a deteriorating consumer sentiment. The aggregate output of goods and services remains somewhat below potential.

In February — early March 2014, the year-on-year growth rate of consumer prices rose and reached 6.4% as of 11 March 2014. Inflation acceleration was caused by the dynamics of prices for some food items, in particular, vegetables and fruit, along with dairy products. To some extent the rouble exchange rate dynamics has contributed to consumer price growth. In addition, core inflation did not decline in February 2014.

The inflation rates are unlikely to fall until mid-2014 due to the observed rouble depreciation. Against this backdrop inflation expectations may increase, exerting upward pressure on consumer prices. On the other hand, the reduction in the growth rates of administered prices and tariffs along with the aggregate output of goods and services remaining somewhat below potential would contribute to inflation slowdown in the second half of 2014.

The Bank of Russia estimates that the impact of observed rouble depreciation on economic growth will be limited. Amid increased uncertainty and declining producer and consumer confidence there is a strong probability of a reduction in fixed capital investment along with a further slowdown in consumption. As a result, Russian economic growth will be lower than expected. The noted factors will partially offset the exchange rate pass-through to inflation. Nevertheless, risks of above-target inflation in 2014 remain.

Given the current monetary policy stance, the slowdown in consumer price growth will resume in the second half of 2014. In the medium term inflation will decelerate to the target levels.

The next regular meeting of the Bank of Russia Board of Directors, where the key rate level will be considered, is scheduled for 25 April 2014. The information notice on the Bank of Russia Board of Directors decision is to be published at 13:30 Moscow time.

Interest rates on the Bank of Russia major operations1
(% p.a.)

Purpose Type of instrument Instrument Term Rate since 03.03.14
(from 11:00 Moscow time)
Liquidity provision Standing facilities (fixed rates) REPO
Overnight loans
Lombard loans
Loans secured with gold
Loans secured with non-marketable assets and guarantees
FX swaps (rouble leg)
1 day 8.00
Open market operations (minimum interest rates) Loans secured with non-marketable assets, auctions2 3 months 7.25
REPO auctions from 1 to 6 days3, 1 week 7.00
(key rate)
Liquidity absorption Open market operations (maximum interest rates) Deposit auctions from 1 to 6 days3, 1 week
Standing facilities (fixed rates) Deposit operations 1 day, call 6.00
For reference:
Refinancing rate 8.25
1 Complete information on interest rates on Bank of Russia operations is given in Table Interest rates on Bank of Russia operations.
2 A floating interest rate, linked to the level of the Bank of Russia key rate.
3 Fine-tuning operations.
Information notice “On the procedure for conducting fine-tuning operations”.
Information notice “On fine-tuning operations to absorb liquidity”.

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