Russian Central Bank leaves the base rate unchanged, levels mandatory reserve requirements

Today’s business daily Vedomosti reports that the Russian Central Bank decided to leave the base refinancing rate unchanged at 8.25 percent and moved to introduce a single mandatory reserve rate of 4.25 percent for all categories of lending. Before the Central Bank’s decision, provisioning requirements for ruble-denominated loans to citizens differed from those for corporate lending – the former being at 4 percent, while the latter was set at 5.5 percent.

The new measure will become effective in the period between March 1 and April 1, 2013. The Central Bank claims that the measure will be neutral to the banking sector and that it does not represent any change in direction of its monetary policy. Due to increased flexibility in exchange rate formation, as well as considering internal and external macroeconomic tendencies, the mandatory reserve requirement mechanism lost a great deal of its importance, the Central Bank says.

As far as the refinancing rate is concerned, the Central Bank stated that it considered inflationary risks and perspectives for economic growth before deciding to leave the rate unchanged. Raiffeisenbank’s analysts believe that the Russian Central Bank will not reduce the rate before March. Experts did not expect the Central Bank to change the refinancing rate at its today’s Board meeting, as the inflation registered in February on a year-on-year basis exceeds the Central Bank’s target figure by 1 percent – instead of desired 5-6 percent, the annual inflation in Russia is currently at 7 percent. The Central Bank acknowledges that the inflation exceeded its target rate and quoted food and transportation prices as the main culprits. However, last week the Vice President of the Central Bank Aleksei Ulyukaev expressed a degree of optimism regarding inflation, stating that it will reach its peak in February and return to the targeted range by the 2nd quarter of 2013. He backed up his expectations with figures indicating a slow growth of money supply as a consequence of lower credit demand.


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