Rise in Refinancing Rates not to Reduce Capital Outflow from Russia: Experts

Business Materials 13 November 2008 13:24 (UTC +04:00)

Azerbaijan, Baku, November 13/ Trend , corr A. Badalova/ On November 12, the Central Bank of Russia put up refinancing rates by 1% points to 12% annually in an attempt to reduce outflow of capital and prevent inflation trends. This is already fifth rise in 2008. The Russian Central Bank increased rates to 10.5% in February 2008 for the first time over the past decade. Central Bank's move contradicts general world practice given the fact that Central Banks all over the world have decided to ease monetary policy and cut interest rates during whole of autumn.

Olga Naydenova, analyst at one of the leading Russian investment banks - Alfa Bank - says Central Bank's decision to step up rates will not help reduce outflow of capital.

"The rates today point to instability. By its decision the Bank seeks to avoid further weakening of ruble and reduce outflow of capital. But this is not enough from realistic point of view," Naydenova said to Trend by telephone on November 13.

"The decision of the Central Bank to put up refinancing rate will provoke rise in credit rates by banks which is not good at all while there is financial crisis and economy needs cheaper capital. This move is not targeted at encouraging financial sector, but at protecting national currency," said Vladimir Osakovski, economist at UniCreditAton, part of UniCredit Group.

"The chief goal behind the rise in rates is not encouraging financial sector, but supporting national currency which is under increasing pressure at the moment," Osakovski said to Trend by telephone. "From this standpoint, this move is quite reasonable".

When the Central Bank put up rate, dollar cost 27.34 rubles and euro - 34.8 rubles in Russia. Though the Central Bank maintained growth of bi-currency basket within 30.4 rubles, bi-currency basket (0.55 dollar and 0.45 euro) reached 30.7 rubles on November 12 as a result of appreciation of US currency by more than 37 kopecks and euro - more than 23 kopecks. 

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