Russia’s central bank kept its key interest rates on hold on Monday, highlighting rising inflationary risks but signalling no early move in coming months.
It also said it was introducing a new one-week rate, a move which will help to tighten its grip on money markets as part of its gradual shift from focusing on the rouble exchange rate to using interest rates as its main tool for targeting inflation.
The central bank, as expected, held its refinancing rate at 8 per cent, fixed the one-day repo rate -a de facto ceiling for money-market rates -at 6.25 per cent, and its overnight deposit rate at 4 per cent.
“We consider the current level of money market rates within the (central bank’s) interest-rate corridor to be appropriate for the coming months,” the central bank said in a statement.
The central bank said it was introducing the new one-week maximum auction deposit rate at 4.75 per cent “to reduce volatility in money-market rates and increase the effetiveness of interest-rate policy.”
Maxim Oreshkin, chief economist Russia and CIS at Credit Agricole in Moscow, said the new rate “could be used to maintain money market rates at the centre of the rate corridor if excessive banking reserves arise.”
Liquidity in Russia’s financial system, however, is unlikely to increase in the near term after net capital outflows nearly doubled in the first quarter of 2012 from a year ago to $35.1 billion. The rouble and one-day interbank lending rates showed no reaction to the central bank’s decision, with rates hovering at 4 per cent, as outflows have drained liquidity from money markets created by recent heavy government spending.
“Now when there is still something of a liquidity deficit, the impact of the launch of the new rate could be rather neutral,” said Maria Pomelnikova, an analyst at Raiffeisen Bank in Moscow.
The central bank warned in the statement that mid-term inflation risks would be boosted by planned increases from July 1 in household utility bills after annual inflation remained at a post-Soviet low of 3.7 per cent in March.