Raising nominal ruble rate is the only tool left for the Bank of Russia to battle inflation.
Photo: Yury Martyanov
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Russia Has No Tools to Cope with Money Influx
Russia’s Central Bank cannot keep on raising rates on deposits, Central Bank’s First Deputy Chairman Alexey Ulyukaev said. The difference between the rates of the Central Bank and those of inter-bank market will give foreign stags another tool to make money.
The Central Bank cannot cope with money which is coming to the country. Money supply in Russia grew 15.3 percent in January-July 2006 (only 9.1 percent in the same period last year). Russian economy cannot digest this amount of money, and excessive liquidity drives up inflation. In other countries, the problem is settled by issuing state securities or changing refinancing rates. Russia’s government does not favour the former, thinking that issuing securities makes no sense with a record-high budget surplus.
Changing refinancing rates does not work in Russia. Sberbank’s president Andrey Kazmin said in an interview with Kommersant that authorities were afraid that a large number of long loans will make money supply larger in short-term outlook.
The Central Bank is looking for new ways to manage liquidity. Rates on deposits on Central Bank’s accounts have been an effective tool so far. The rates on week deposits have gone up from 1 to 2.5 percent since spring.
However, Alexey Ulyukaev statement means that the Central Bank has exhausted itself in this sphere. Consequently, raising nominal ruble rate is the only tool left for the Bank of Russia to battle inflation. Yet, this move will make financial market player bring more money to Russia’s market in anticipation of a boost.
www.kommersant.com
All the Article in Russian as of Sep. 22, 2006
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