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The Board of Directors’ Decision on the Bank of Russia Key Rate (Unofficial translation)

14 February 2014
Press release

On 14 February 2014 the Bank of Russia Board of Directors decided to maintain the Bank of Russia key rate at 5.50 percent per annum. The decision was based on the analysis of the current trends and macroeconomic projections, that, given unchanged monetary policy stance, by the end of 2014 inflation is expected to be close to the target level amid slow economic growth.

The world economy continues to recover slowly but there are diverse trends observed in different regions. Weak economic growth in the countries that are Russia’s trading partners curbs demand for Russian exports and restrains the national economy. At the same time, oil prices remain at consistently high levels.

Russian economy’s growth rates remain low while industrial output continues to stagnate. Meanwhile, business confidence indices show the lack of improvement in producers’ sentiments. Weak investment activity is caused by the overall economic uncertainty and lower profits in the real sector. Fueled by growth in retail lending and high growth of real wages, consumer demand is still a major driver of economic growth . The aggregate output of goods and services remains somewhat below potential.

Demand for bank loans has not demonstrated any growth amid the slack in economic activity. This led to a moderate decrease in interest rates on bank loans and on household deposits. Lending to non-financial organizations showed stable dynamics despite a persistent tightening of requirements for a borrower’s financial standing and a loan collateral quality. Household loan growth continued to slow down, though stayed rather high. The Bank of Russia assesses that the current lending dynamics does not restrain economic growth.

In December 2013, the annual growth rate of consumer prices reached 6.5%, surpassing the target range for the specified period. Acceleration of inflation in 2013 Q4 was largely attributed to rise in prices of fruits and vegetables, along with some milk and poultry products. The Bank of Russia estimates the contribution of this factor to the inflation acceleration in 2013 at 0.5 percentage point. In early 2014, the annual growth of consumer prices decelerated and stood at 6.1% as of 10 February 2014. The slowdown in inflation occured due to the decline in the growth rate of food prices. Core inflation remained stable in the second half of 2013 and in early 2014.

Factors that led to acceleration of inflation at the end of 2013 are expected to exhaust their influence in the first half of 2014. Amid slow recovery of external demand and weak investment activity, the aggregate output of goods and services will remain below potential. This factor will contribute to a decrease in the consumer price growth rate. Slow growth rates in monetary aggregates formed in 2012 and persisted in 2013 will also contain inflation in 2014. Based on the above specified trends and given the current key rate level, the Bank of Russia expects the downward trend in consumer price growth to continue with inflation rate converging to the target level of 5.0% in late 2014.

Major sources of uncertainty for this forecast are inflationary risks related to accelerated price growth at the end of 2013 and observed currency depreciation. If the negative impact of these factors spills over to the prices of a wide range of goods and services and to the household expectations, the probability of inflation deviating from the mid-term targets will increase. In this case, the Bank of Russia will be ready to tighten its monetary policy.

The next Bank of Russia Board of Directors meeting is to be held on March 14, 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 Bank of Russia major operations1
(% p.a.)

Purpose Type of instrument Instrument Term Rate since 16.09.13
Liquidity provision Standing facilities (fixed rates) REPO Overnight loans Lombard loansLoans secured with gold
Loans secured with non-marketable assets and guarantees
FX swaps (rouble leg)
1 day 6.50
Open market operations (minimum interest rates) Loans secured with non-marketable assets, auctions2 3 months 5.75
REPO auctions from 1 to 6 days3,4, 1 week 5.50
(key rate)
Liquidity absorption Open market operations (maximum interest rates) Deposit auctions from 1 to 6 days3,5, 1 week
Standing facilities (fixed rates) Deposit operations 1 day, call 4.50
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.
Minimum interest rate on REPO auctions for terms from 1 to 6 days is effective since 03.02.2014. Information notice “On the procedure for conducting fine-tuning operations”.
Maximum interest rate on REPO auctions for terms from 1 to 6 days is effective since 17.02.2014. Information notice “On fine-tuning operations to absorb liquidity”.

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