Central Bank of Russia raises deposit rates 0.25 pp
MOSCOW. Dec 11 (Interfax) - The Central Bank of Russia raises fixed-term deposit operations by 0.25 percentage points and reduces the interest rate on the ruble leg of the Bank of Russia FX swap transactions by 0.25 pp effective December 11.
The Central Bank's board of directors, at a meeting on Monday, decided to alter these rates and to keep the key refinancing rate on hold, at 8.25%.
The CB said in comments to the decision that the decision was "supported by the assessment of inflation risks and economic growth prospects. Narrowing the spread between the interest rates on certain Bank of Russia liquidity providing and absorbing operations is neutral from the viewpoint of the current monetary policy stance. It should contribute to restraining money market rates volatility and strengthening of the interest rate channel of the monetary policy transmission mechanism," the CBR said.
"In November the pace of inflation was unchanged at 6.5% over a year ago. Core inflation remained at 5.8%. In the recent months stabilization was observed in a wide range of consumer goods and services prices, while the growth of nonfood goods prices decelerated. Still, the pace of inflation remains above the target range, which may affect economic agents' expectations and thus poses inflation risks. On the other hand, the September 2012 increase in the Bank of Russia interest rates is to some extent curbing inflation expectations. Moreover, any significant demand-pull price pressures are absent."
"In the third quarter the pace of GDP growth declined to 2.9% over a year ago, reflecting some cooling in economic activity. The dynamics of the key macroeconomic indicators in October pointed to continuation of this trend with the growth of industrial production and retail sales subsiding. However, economic confidence indicators remain positive and labour market conditions together with credit expansion provide support to the domestic demand. According to the Bank of Russia estimates, the gross output remains close to its potential level."
"The pace of bank lending growth is leveling off but remains relatively high, implying that the risks of a significant economic slowdown stemming from the tighter monetary conditions are minor."
"Considering recent domestic and international macroeconomic developments the Bank of Russia judges that the current level of money market interest rates is appropriate for the near future. The Bank of Russia will continue to monitor inflation risks, including global food price dynamics, global economic developments and the consequences of the monetary conditions tightening for the Russian economy. In making monetary policy decisions the Bank of Russia will be guided by medium-term inflation goals and economic growth prospects, as well as the dynamics of inflation expectations."
The next meeting of the Board of Directors of the Bank of Russia on monetary policy issues is planned to be held in the first half of January 2013.
The Central Bank had not included the phrase about the current level of rates being appropriate in its commentary to the rate decision for half a year. This, together with the decisions that the market has been expecting in recent months to narrow the spread between rates for selected operations, signals that there might be a pause in monetary policy.
The phrase on the outlook for rates, which in July the CBR changed to sound less specific (from "appropriate for the coming months" to "appropriate for the near future"), and in August removed altogether, and was then absent for four consecutive months. Analysts took this to mean that the CBR wanted to allow itself space to maneuver amid the uncertainty over inflation.
Technically, it is this paragraph that is key to forecasting future CBR decisions. "If our commentary does not say anything about what time period we consider comfortable, it means we can do this [change rates] at any meeting," Central Bank First Deputy Chairman Alexei Ulyukayev said a month ago.
Inflation has slowed in recent months: the Economic Development Ministry says in its latest estimate that 6.5% inflation is possible for the year, although until recently forecasts went as high as 7%.
The last time the rates for providing and absorbing liquidity converged was December 26, 2011, when the CBR lowered the refinancing rate and selected fixed-term rates for providing liquidity 0.25 pp and raised fixed-term deposit rates 0.25 pp. Currency swap rates were last altered in isolation to other rates in the middle of June, when the refinancing rate and other key rates were kept on hold and the ruble leg of the currency swap was lowered to 6.50% and the FX leg to 0%.
The Central Bank said on its website that it conducted EUR2.846 billion in euro swaps with commercial banks in November, up 140% from EUR1.167 billion in October. USD swaps fell 17% to $3.425 billion from $4.124 billion.
The EUR2.86 billion in euro swaps was the most since the record EUR15.746 billion seen in October 2008. The post-October 2008 high for USD swaps was $8.643 billion in June 2012 (three times less than in October 2008).
Banks started to use currency swaps heavily in May this year as liquidity tightened and the ruble weakened. Overall USD swaps came to $19.558 billion in May-November, and euro swaps to EUR8.428 billion.
CBR forex swaps:
| USD, mln | Euro, mln | |
| May | 285,3 | 900,9 |
| June | 8 643,20 | 1 057,40 |
| July | 2 133,40 | 584 |
| August | 0,00 | 151,3 |
| September | 948,1 | 1 721,00 |
| October | 4 123,50 | 1 167,00 |
| November | 3 424,10 | 2 846,10 |
Interest rates for CBR operations as of December 11, 2012, in %:
| Purpose | Type of instrument | Instrument | Term | Rate from 26.12.11. | Rate from 18.06.12. | Rate from 14.09.12 | Rate from 11.12.12 |
| Provision of liquidity | Standing facilities (fixed rates) | Overnight loans | 1 day | 8,00 | 8,00 | 8,25 | 8,25 |
| Forex swaps (ruble rate) | 1 day | 8,00 | 6,50 | 6,75 | 6,50 | ||
| Lombard loans, REPO | 1, 7 days* | 6,25 | 6,25 | 6,50 | 6,50 | ||
| Lombard loans | 30 day* | 6,25 | 6,25 | 6,50 | 6,50 | ||
| REPO | 12 months* | 7,75 | 7,75 | 8,00 | 8,00 | ||
| Loans secured by gold | Up to 90 days | 6,75 | 6,75 | 7,00 | 7,00 | ||
| Between 91 and 180 days | 7,25 | 7,25 | 7,50 | 7,50 | |||
| Between 181 and 365 days | - ** | 7,75 | 8,00 | 8,00 | |||
| Loans secured by non-marketable assets and guarantees | Up to 90 days | 7,00 | 7,00 | 7,25 | 7,25 | ||
| Between 91 and 180 days | 7,50 | 7,50 | 7,75 | 7,75 | |||
| Between 181 and 365 days | 8,00 | 8,00 | 8,25 | 8,25 | |||
| Operations on open market (minimum interest rates) | REPO auctions | 1 day | 5,25 | 5,25 | 5,50 | 5,50 | |
| Lombard loans, REPO auctions | 7 days | 5,25 | 5,25 | 5,50 | 5,50 | ||
| 3 months | 6,75 | 6,75 | 7,00 | 7,00 | |||
| 6 months* | 7,25 | 7,25 | 7,50 | 7,50 | |||
| 12 months | 7,75 | 7,75 | 8,00 | 8,00 | |||
| Liquidity absorption | Operations on open market (maximum interest rates) | Deposit auctions | 7 days | - *** | 4,75 | 5,00 | 5,00 |
| 1 month* | 5,50 | 5,50 | 5,75 | 5,75 | |||
| 3 months* | 6,50 | 6,50 | 6,75 | 6,75 | |||
| Standing facilities (fixed rates) | Deposit operations | 1, 7 days 1 month ****, call | 4,00 | 4,00 | 4,25 | 4,25 | |
| Refinancing rate | 8,00 | 8,00 | 8,25 | 8,25 |
* Operations have been suspended.
** valid from April 2, 2012
*** valid from April 10, 2012
**** valid from July 2, 2012