Russia Monetary Policy


Central Bank raises deposit rate, hinting at tightening cycle

On 24 December, the Central Bank decided to leave the refinancing rate unchanged at the historic low of 7.75% for a sixth consecutive month, but raised the overnight deposit rate by 25 basis points, from 2.50% to 2.75%, in a move which is considered by market analysts as an early step towards monetary tightening. The overnight deposit rate constitutes the lower bound of the policy rate corridor - the higher bound being the refinancing rate - used by the Central Bank to influence rates in the inter-bank overnight lending market. Monetary authorities stated that the positive momentum of the economy in recent months and mild inflationary pressures did not call for a raise in the main policy rate. That said, the Central Bank maintained that narrowing the interest-rate corridor could increase the effectiveness of the current monetary policy stance, by reducing volatility of market interest rates. Finally, the Central Bank stated that, although inflation risks remain moderate, they "deserve more attention from monetary authorities". Accordingly, a majority of panellists believe that the Central Bank will raise the interest rates at least by 25 basis points in the first quarter of this year.

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