Chairman of the Central Bank of Russia Sergey Ignatyev is paying no attention to his U.S. colleague Bernanke, who lowered the interest rate.
Photo: Sergey Mikheev
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Central Bank Raises Refinancing Rate
For the first time in ten years, the Central Bank of Russia is raising the refinancing rate. It goes up 0.25 percent on February 4, to 10.25 percent. The Bank has changed other rates as well, such as that on repo (overnight repurchase agreement) auctions, although that rate had previously been referred to there as “untouchable.” Reserve requirements, that is, the portion of a bank's deposits or debts to creditors it is required to keep in the Central Bank, have also been tightened.
Observers call the cosmetic and say they will have little effect on inflation. It is possible, however, that the Bank was aiming at a political, rather than economic effect. The changes can be seen as a sign to investors of Central Bank chairman Sergey Ignatyev's support of Finance Minister Alexey Kudrin's fight to make Russia “an island of stability” in the midst of world economic crisis.
Ignatyev's decision was unexpected. Since August of last year, the central banks of all the major economic powers in the world (with the exception of China) have been lowering their rates. The last time Central Bank of Russia raised its rates was on June 29, 1998, when it raised the refinancing rate from 60 percent to 80 percent per year. After that, it gradually decreased to 10 percent on June 19, 2007. The rise in the repo rate for 6 percent to 6.25 percent may have the most impact. It had remained unchanged for more than four years.
Central Bank first deputy chairman Alexey Ulyukaev told Prime-TASS that the Bank had been using the strengthening of the ruble to fight inflation, but now “the role of the transmission mechanism of the interest rate is objectively rising.” He said that the new measures are to have a sterilization effect. Economists, however, do not expect many results. They call the move a “show of power.” They estimate that 50-100 billion rubles will be removed from the market, but that is not a dramatic difference. Strengthening of the ruble will still be necessary to fight inflation.
www.kommersant.com
All the Article in Russian as of Feb. 04, 2008
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