Russia: Bank Rossii announces overhaul of monetary policy rate system
September 19, 2013
At its 13 September meeting, Bank Rossii announced a set of measures to simplify the structure of its monetary policy instruments - in line with the goal of adopting an inflation-targeting regime - by reducing the number of reference interest rates. The Central Bank set the interest rates on both the one-week deposit and lending REPO operations at 5.50%. From now on, the "unified" rate will be the reference policy rate.
Additionally, the Bank discontinued various lending and deposit facilities. The interest rate on all overnight lending operations was set at 6.50%, while the rate on all overnight deposit operations was set at 4.50%. The upper and the lower bound of the monetary policy corridor will be the overnight lending rate and deposit rate, respectively. When the Central Bank modifies the key interest rate, the overnight rates will both change. The refinancing rate - which previously worked as the reference policy rate - will be set as equal to the one-week repo rate by 1 January 2016 and will play a minor role until then. The Central Bank stated that the decision, "implies unchanged monetary policy stance", as most of the key interest rates were left unchanged.
By adopting a well-defined monetary policy corridor, the Bank will improve the transparency of its monetary policy as well as economic agents' understanding of the policy - thus making the goal of achieving price stability easier. The Central Bank aims to fully adopt an inflation-targeting regime by 2015. In order to do so, it will have to let the ruble flow fully and halt intervention in the foreign exchange market.
On 27 September, the Central Bank raised its inflation target for 2014 from 4.5% to 5.0%, which was a revision of the target envisaged in a draft version of the "Guidelines for the Single State Monetary Policy" released in early September. The upgrade takes into account the government's decision to not freeze the regulated prices and tariffs increases planned for next year. Notably, the Central Bank switched from the use of a target range to a point target, in order to get a, "clearer signal of the inflation rate regarded as desirable by the Bank of Russia." Target rates for 2015 (4.5%) and for 2016 (4.0%) were left unchanged.
Against this backdrop, FocusEconomics Consensus Forecast panelists expect the refinancing rate to close the year at 7.77%. For 2014, the panel expects the rate to end the year at 7.46%.
Author: Armando Ciccarelli, Head of Data Solutions