Russia Monetary Policy


Central Bank leaves rates unchanged while widening rouble trading band

At its policy meeting on 13 July, the Central Bank left the refinancing rate unchanged at 8.00%, in a move that was largely expected by market analysts. In addition, the Central Bank left both the overnight deposit rate unchanged at 4.00% and the overnight repurchase rate at 5.25%. Inflation picked up in July on the back of increases in regulated prices and tariffs planned. According to the Central Bank, inflation will creep up further in the rest of the second half of the year, although it will end 2012 within the Bank's 5.0%-6.0% target range. However, uncertainty regarding the consequences of the July drought on harvests remains a source of additional inflationary risks. According to analysts, the tone of the statement signals a more hawkish tone, as the Central Bank used the wording "near-term" rather than "in the coming months" in referring to the appropriateness of the current monetary policy stance, suggesting the possibility of a rate hike if inflation risks materialize. Later in the month, on 25 July, the Central Bank widened the rouble's (RUB) trading band against the USD-EUR basket that is the reference for the Bank's exchange rate policy. The Bank currently manages the exchange rate by buying foreign currency when the RUB trades below the lower end of the band and selling it when it trades above the higher end. The Bank widened the corridor symmetrically by one rouble, setting the new band between 31.65 RUB and 38.65 RUB per basket. The move represents a further step towards a free floating exchange regime, as the Central Bank gradually shifts towards an inflation targeting framework.

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Russia Monetary Policy Chart

Russia Monetary Policy August 2012

Note: Refinancing rate in %.
Source: Central Bank of the Russian Federation (CBR).

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