Increasing subsidized lending undercuts monetary policy measures - Putin

KHABAROVSK. Jan 11 (Interfax) - Increasing subsidized lending reduces the effectiveness of monetary policy measures to curb inflation, President Vladimir Putin said at a meeting with entrepreneurs in the Far East Federal District.

An entrepreneur at the meeting complained about the long-term exhaustion of limits for the program to subsidize lending rates for residents of the priority development area and free port of Vladivostok under government resolution No. 1818. He said the limits were exhausted because the Central Bank raised interest rates and asked for this program to be expanded.

"As for increasing limits, additionally funding banks, this will, if not nullify, then reduce the effect of what the Central Bank is doing to dampen inflation," Putin said, supporting the Central Bank's position.

"Everything you're proposing is an increase to the very same money supply, so this can theoretically be done, but it runs against the goals for which the Central Bank's key rate is being raised," Putin said.

Nonetheless, he said he would discuss this issue with the government. "In general, we're still giving money with certain preferences to the economy in a targeted manner. We need to see whether, given the whole situation in the economy, there are grounds to provide additional funds here - either increase funding or raise the amount of subsidies. Nonetheless, we'll think about. I'm not saying no, but I'm very cautious about this," Putin said.

Russia's Central Bank began raising its key interest rate last July, when it was hiked by 100 basis points to 8.5% from 7.5%. Then, at an extraordinary board meeting in August, the CBR raised the rate by a whole 350 points to 12% and in September it hiked the rate by another 100 points to 13%. In October, the CBR raised the rate by a further 200 points to 15% and in December it hiked the rate 100 points to 16%.

"The Central Bank's key rate in its current form is temporary in nature, after all. Both the head of the Central Bank and experts say this. As issues related to inflation, curbing inflation are resolved, I think this position will change," Putin said.