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Russia Interest Rate

Constantinos Philippides
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Russia’s Central Bank has decided on 13th of December 2013 to keep it’s key interest rate on hold at 5.5% as growth remains, low and inflation expectations are pressured by food price increase.

Statement by Board of Directors:

“In November and in early December, annual CPI inflation increased and as of 9th of December 2013 was estimated at 6.5%, which exceeded the upper bound of the target range for the current year. The acceleration of inflation was mainly attributed to rise in prices of fruits and vegetables, which was unusual for this season, and of some animal products. In November the core inflation annual rate amounted to 5.6%.

The absence of significant demand-side inflationary pressure in the context of gross output staying slightly below its potential is one of factors constraining rise in non-food prices in recent months. According to the Bank of Russia estimates, the factors affecting acceleration of price growth have short-term effect.

The Bank of Russia forecasts that inflation will resume the declining trend in the first half of 2014 and achieve the target in the second half of the year. The expected sluggish recovery of external demand and the subdued investment activity will constrain inflation dynamics. Nevertheless, the observed increase in inflation may affect economic agents’ expectations and, thus, poses inflation risks. Therefore, the downward trend in inflation expectations needs to be formed to ensure a way of achieving an inflation target in the medium term.

The Bank of Russia will continue to monitor the inflation risks and the downside risks to economic growth. The Bank of Russia will take into account the inflation targets and the inflation forecast, as well as economic growth prospects when making monetary policy decisions.”

From 2003 until 2013 Russia averaged 6.5% reaching an all time high of 10.5% in April of 2009 and a record low of 5.0% in June of 2010.

Central Bank of Russian Federation (CBoRF) is taking all the Interest Rate decisions.

Until 15th of September 2013m the official Interest Rate was the refinancing rate, which was seen as a ceiling for borrowing money and a benchmark for calculating tax payments.

From 16th of September 2013 the official Interest Rate is the discounted rate at which the CBoRF repurchases government securities from the commercial banks and depending on the money supply it decides to maintain in the country’s monetary system. To temporarily expand the money supply, the CBoRF decreases repo rates so that banks can swap their holding of government securities for cash.

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