Russia: Central Bank moves to fight liquidity shortage
September 14, 2011
On 14 September, the Central Bank decided to leave the refinancing rate unchanged at 8.25%, in a move that was widely expected by market analysts. However, the Central Bank unexpectedly cut the overnight repurchase rate by 25 basis points, from 5.50% to 5.25%, while simultaneously raising the overnight deposit rate by the same amount, from 3.50% to 3.75%. With the move the Central Bank narrowed its interest rate corridor by 50 basis points, as the overnight repurchase rate represents the higher and the deposit rate the lower boundary of the policy rates used by the Central Bank to influence rates in the inter-bank overnight lending market. According to the Central Bank, the decision will reduce interest rate volatility as banks begin to face tighter liquidity conditions. Meanwhile, consumer prices continued to moderate (August: +8.2%; July: +9.0%), as a bumper harvest drove food prices lower. In the statement accompanying the decision, the Central Bank pointed out that the moderating trend in inflation will remain in place going forward. Accordingly, analysts believe that the Central Bank may ease policy to stimulate the Russian economy in case of a pronounced slowdown in economic activity in the coming months.
Author: Armando Ciccarelli, Head of Data Solutions