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Keying into the Russian Central Bank's key rate

Russia’s Central Bank cut the key rate to 9% on June 16
Russia’s Central Bank Vyacheslav Prokofiev/TASS
Russia’s Central Bank
© Vyacheslav Prokofiev/TASS

TASS-FACTBOX. On July 28, 2017, the Board of Directors of Russia’s Central Bank holds a meeting on monetary policy. At that meeting the possibility of changing the Central Bank’s key rate is to be considered. At present, the key rate is 9%.

What is the key rate?

The key rate is the annual interest rate by which the Central Bank issues loans to commercial banks. By the decision of the CBR Board of Directors on September 13, 2013, the key rate was set as the refinancing rate for repo auctions (repurchase agreement, repo; purchase of money or securities with an obligation to resell them after a certain period at a fixed price) with a week’s timeframe. The remaining rates for the Central Bank’s operations are attached to the key rate.

Russia’s Central Bank may raise the refinancing rate to prevent a market collapse and smooth out any fluctuations in trading.

If the refinancing rate is low, commercial banks can borrow rubles from the Central Bank, use them to buy foreign currency in order to cover interest payments on ruble loans thanks to any devaluation in the Russian currency.

If the refinancing rate is raised, such speculative operations become riskier for banks. At the same time, a higher rate leads to an increase in the cost of borrowing for entrepreneurs and the population, and banks may have difficulties with refinancing the loans they had already taken out. This may lead to a slowdown in economic growth.

Until 2013, the refinancing rate was the main interest rate. Set for the first time in 1992 at the level of 20% per annum, in 1993-1996, the rate skyrocketed to 210%, and later fluctuated between 20-50%. After peaking on May 27-June 4, 1998 at 150%, it gradually decreased. The minimum refinancing rate of 7.75% was set on June 1, 2010, and was in effect until February 28, 2011.

By the early 2010s, the refinancing rate was used only as a tool for calculating fines, penalties, and as a benchmark for the minimum amount of interest on the general public’s ruble deposits. By then, loans to banks were provided with the help of other instruments, primarily repo transactions. As of January 1, 2016, the refinancing rate was set to the rate for weekly repos.

Minimum discount rate on weekly repo auctions in 2003-2012

For the first time, the minimum discount rate for weekly repo auctions was set by Russia’s Central Bank on May 20, 2003 at 6.5% and it 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 was raised several times.

On December 1, 2008, it was set at 9.5%, and on February 10 of 2009 it was raised to 10.5%, which was followed by the strengthening of the ruble exchange rate.

In 2009-2010, the regulator gradually lowered the rate. In particular, on May 14 - June 5, 2009, the level of 9.5% per annum was fixed again.

From June 1, 2010 to February 28, 2011, the rate for weekly repo auctions landed at its historical minimum (5%).

On September 14, 2012, the rate was set at 5.5% per annum. This value was maintained after the refinancing rate was established as the key rate.


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


On January 30, 2015, the Central Bank cut the key rate to 15%. The regulator explained the move by the fact that the previous rise of the key rate led to stabilization of inflationary and devaluation expectations. The Central Bank 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. At the same time, in July 2015, Russia’s Central Bank announced that further on it would decide on the level of the key rate, depending on the changes in the balance of inflation risks and the risks of economy slowdown. On September 11, October 30 and December 11, 2015, the Board of Directors of the Central Bank decided to keep the key rate at 11% per annum.


At the meetings on monetary policy held on January 29, March 18 and April 29, 2016, the Board of Directors of the Central Bank again 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 there are signs that the national economy is approaching the stage of recovery growth and that is why it expects stabilization of inflation, lower inflationary expectations and inflation risks.

On July 29, the Central Bank of Russia decided to keep the key rate at 10.5% per annum.

On September 16, 2016, the regulator reduced the key rate to 10% per annum, "taking into account the slowdown in inflation in line with the forecast and the reduction of inflationary expectations amid remaining volatile economic activity."

On October 28 and December 16, 2016, and also on February 3, 2017, the regulator decided not to change the rate.

On March 24, 2017, the Central Bank for the first time since 2014 lowered the key rate below 10% - to 9.75% per annum. In a press release, the regulator noted that inflation in Russia is approaching the target level as economic activity is recovering.

On June 16, 2017, the regulator lowered the key rate to 9%.