The Bank of Russia took the Prime Minister's suggestion, reducing the refinancing rate.
What was so much argued for by MPs, businessmen, governors, workers, farmers, and others has finally become reality - the Bank of Russia reduced the refinancing rate. As of last week, the rate was 12.5%. Public pressure only partially contributed to the decision. Prime Minister Vladimir Putin had the final say on the issue. He sent the head of the Central Bank a subtle, but compelling message to act.
Last week, during the Cabinet's meeting on the state of the banking system, he indicated that the rate of inflation was slowing, enabling the Central Bank to reduce the refinancing rate.
"Is this correct, Mr Ignatyev?" the Prime Minister asked the Central Bank head Sergei Ignatyev.
The latter nodded in response, despite his earlier statements that the refinancing rate could only be reduced if the inflation rate in April was lower than last year. While the month is not over yet, there have been some positive changes regarding lower inflation. From late March, the current inflation rate has been lower than in 2008. According to Rosstat (Russian State Statistics Agency), the inflation rate between April 1 and April 20 was 0.6%, compared with 1.1% last year. Therefore, it is highly probable that by the end of the month the inflation rate will be significantly lower than last year's rate of 1.4%.
The Central Bank could probably have reduced the rate on its own based on April's inflation rate, but it would have only happened in May. Mr Ignatyev's nod to give the go-ahead materialised in the Central Bank's board decision to reduce the rate by 0.5%. This is more of a compromise solution, however. On the one hand, it provides at least some relief for businesses who suffer from expensive loans. Now, they can expect multi-million rouble investments in the economy. On the other hand, the reduction is not significant enough to seriously affect savings. The relationship between the refinancing rate and the interest rates on deposits is well established - the more the former is reduced, the smaller the interest rate on household deposits.
Anna Kaledina