Russian Reserve Requirement Lifted

January 31, 2011

Bank Rossii left its key refinancing rate at 7.75%, its level since June 2010.  The rate had been cut by 425 basis points during 2009 and a further 100 bps over the first five months of 2009.  With economic activity now expanding at about a 4% pace, accelerating inflation has moved to the forefront of economic problems to be addressed. Like many emerging economies, officials worry that raising interest rates would suck in more foreign capital and therefore be an ineffectual means for containing inflation.  So instead, Bank Rossii announced a hike in reserve requirements on non-resident companies to 3.5% from 2.5, the first increase since July 2009, and increased other reserve requirements by 50 basis points to 3.0%.  Russian consumer prices rose 8.8% in the year to December, and the 12-month increase will exceed 9.0% this month.  Amid signs of upwardly creeping expected inflation, the central bank is trying to push inflation back below 7% in the medium term.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express  permission.



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