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Russian Central Bank plans to hold meeting on monetary policy

June 15, 19:54 UTC+3 MOSCOW

The Board of Directors will consider changing the key rate, which is currently set at 9.75% per annum

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© AP Photo/Richard Drew

MOSCOW, June 15. /TASS/. The Russian Central Bank plans to hold a meeting of the Board of Directors on monetary policy issues on June 2017. The Board will consider changing the key rate, which is currently set at 9.75% per annum.

The key interest rate is an annual interest rate used by the Central Bank to lend to commercial banks. On September 13, 2013, the Central Bank Board of Directors has decided to set REPO (repurchase agreement) rate for a period of one week as a key rate. The remaining rates for the Central Bank’s operations are attached to the key rate.

The Central Bank may raise the rate to prevent the collapse of the market and offset the exchange rate fluctuations. When the interest rate is low, banks can take ruble loans from the Central Bank, buy foreign currency, and at the expense of devaluing the Russian currency cover the costs of paying interest on ruble loans. When the rate grows, such speculative operations become more risky. At the same time, growth of the rate leads to a rise of loans’ cost for entrepreneurs and the population, banks may have difficulties with refinancing loans that were already issued. This may lead to a slowdown of economic growth.

For the first time, the minimum rate for weekly REPO auctions was set by the Central Bank on May 20, 2003, at 6.5% and did not change until February 2008, when it was raised by 0.2%. Due to the global financial crisis and the depreciation of the ruble in 2008, the rate has been raised several times. On December 1, 2008, it was set at 9.5%, and on February 10 of the following year it was raised to 10.5%, followed by the strengthening of the ruble exchange rate. Then, during 2009-2010, the rate gradually decreased, in particular, the level of 9.5% per annum was once again set on May 14 - June 5, 2009. The historical minimum of the rate was 5% and it held for more than six months - From June 1, 2010, to February 28, 2011. The level of 5.5% per annum was set on September 14, 2012, and was preserved after this rate was established as the key one.

Due to the conflict in Ukraine, weakening of the ruble, growth of inflation, introduction of sanctions against Russian companies, and other factors in spring and summer of 2014, the Russian Central Bank raised the key rate six times - on March 1 to 5.5% per annum, April 25 - up to 7.5%, July 25 - up to 8%, November 5 - to 9.5%, on December 12 and 16 - to 10.5% and 17% per annum, respectively.

On January 30, 2015, the Central Bank reduced the key rate to 15%, explaining the decision by the fact that the previous rise led to stabilization of inflationary and devaluation expectations. The regulator expected inflation to decrease in the medium term. On March 13, 2015, the key rate was reduced to 14% per annum, on April 30 - to 12.5%, on June 15 - to 11.5%, on July 31 - to 11% per annum. In July 2015, the Central Bank announced that it would subsequently decide the level of the key rate depending on the changes in the balance of inflation risks and the risks of economic slowdown. On September 11, October 30 and December 11, 2015, the Board of Directors of the Central Bank decided to maintain the key rate at 11% per annum.

On January 29, March 18 and April 29, 2016, the Board of Directors of the Central Bank decided to keep the key rate at 11% per annum. On June 10, for the first time in 11 months, the key rate was lowered to 10.5%. In a press release, the Central Bank said that it expected positive processes to stabilize inflation, reduce inflation expectations and inflation risks against the backdrop of signs of the imminent entry of the economy into the phase of recovery growth. July 29, the Central Bank decided to keep the key rate at 10.5% per annum.

On September 16, 2016, the Central Bank reduced the key rate to 10% per annum, "taking into account the slowdown of inflation in line with the forecast and reduction of inflation expectations with remaining volatile economic activity." On October 28 and December 16, 2016, and also on February 3, 2017, the Central Bank decided not to change the rate.

On March 24, 2017, the Central Bank for the first time since 2014 lowered the rate below 10% - to 9.75% per annum. On April 28, 2017, the rate was reduced to 9.25% per annum. In the press release, the regulator noted that Russia’s inflation was approaching the target level amid the revival of consumer activity.

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