The Board of Directors’ Decision on Bank of Russia Interest Rates (Unofficial translation)

The Bank of Russia External and Public Relations Department informs that on 13 September 2013 the Bank of Russia Board of Directors decided to cut interest rate on overnight loans and on one-day loans secured by non-marketable assets and guarantees to 6.50 percentage per annum and to raise maximum interest rate on one-week deposit auctions to 5.50 percentage per annum. At the same time, the system of monetary policy instruments was complemented by the auction for the provision of loans, secured by non-marketable assets, for 3-month term with floating interest rate. According to the of the Bank of Russia Board of Directors’ decision, the minimum spread to the unified rate on auctions for liquidity provision and absorption for one week (key rate) is set at 0.25 percentage points (table “Interest rates on the Bank of Russia operations”).

This decision is based on the assessment of inflation risks and economic growth prospects and implies unchanged monetary policy stance.

GDP growth rate decreased substantially in the second quarter of 2013 mainly due to decline in manufacturing and construction. In July, production activity indicators and investment demand remained subdued. Consumer demand supported by the real wage and retail lending growth remains the major driver for the economic growth. The unemployment rate stays at the relatively low level. According to Bank of Russia estimates, the risks of persistently low economic growth continued to be related to subdued investment activity and sluggish recovery of external demand.

In August and in the beginning of September, consumer inflation growth rate continued to decrease, though staying above the target range, and as of 9 September 2013 was estimated at 6.3% year on year. Decline in the food inflation was partially offset by the higher growth rate of gasoline prices and certain regulated prices and tariffs. The absence of significant demand-side inflationary pressure with gross output staying slightly below its potential level is considered one of the factors fuelling decline in core CPI in recent months. At end-August, the core inflation annual rate stood at 5.5%. Based on Bank of Russia estimates, given the expected improvement of food market conditions due to favourable assessments of this year harvest, the inflation is expected to get back to the target range by the year-end. Given unchanged monetary policy stance and continuation of the current macroeconomic tendencies, the inflation will continue declining in 2014. At the same time, to ensure inflation target achievement in the medium term constructive trends in inflation expectations are to be formed.

According to Bank of Russia estimates, given domestic and external macroeconomic trends the level of money market interest rates ensures the balance between inflations risks and risks of low economic activity for the nearest future.

The Bank of Russia will continue to monitor inflation risks and the downside risks to economic growth. In making monetary policy decisions the Bank of Russia will be guided by the inflation objectives 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 on 14 October 2013; the press-release on the Board of Directors’ decision is planned to be published at 13:30 Moscow time.

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

¹ Floating interest rate, linked to the level of unique rate on one-week auctions for liquidity provision and absorption.

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

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