On the system of Bank of Russia monetary policy instruments (unofficial translation)
The Bank of Russia External and Public Relations Department informs that on 13 September 2013 the Bank of Russia Board of Directors decided to implement a set of measures aimed at developing the system of monetary policy instruments as part of transition to inflation targeting. These measures include:
1) introduction of Bank of Russia key rate by the unification of interest rates on one-week liquidity provision and absorption open market operations;
2) formation of Bank of Russia interest rate corridor and optimisation of instruments for managing banking sector liquidity;
3) change of refinancing rate role in the system of Bank of Russia instruments.
These changes will increase monetary policy transparency and improve its understanding by economic agents which contribute to strengthening the interest rate and information channels of the monetary policy transmission mechanism and achieving the price stability — the ultimate goal of monetary policy.
1. Bank of Russia interest rate corridor
The Bank of Russia Board of Directors’ decision to set maximum interest rate on one-week deposit auctions equal to the minimum interest rate on one-week liquidity provision open market operations, and to cut interest rate on the overnight loans and loans, secured by non-marketable assets and guarantees, to the level of interest rate on one-day liquidity provision standing facilities (6.50 percentage per annum as at 13 September 2013) completes the forming of Bank of Russia interest rate corridor with the key rate as its main element.
The Bank of Russia declares the interest rate on Bank of Russia one-week liquidity provision and absorption open market operations (5.50 percentage per annum as at 13 September 2013) to be Bank of Russia key rate. The Bank of Russia will use the key rate as the main indicator of the monetary policy stance. This will facilitate a better understanding of monetary policy decisions by economic agents.
By 1 January 2016, the Bank of Russia is going to make the refinancing rate equal to the key rate. Before that, the refinancing rate will play a minor role.
The interest rates on Bank of Russia one-day liquidity provision and absorption standing facilities form upper (6.50 percentage per annum as at 13 September 2013) and lower (4.50 percentage per annum as at 13 September 2013) borders of the interest rate corridor, respectively, which are symmetric relatively to the key rate . The change in the level of Bank of Russia key rate will lead to the automatic shift of the corridor borders by the same amount. The Bank of Russia determined the width of the interest rate corridor equal to 2 percentage points. This width is considered as optimal for limiting money market interest rates volatility while providing incentives for interbank market activity.
2. Bank of Russia system of interest rate instruments and measures aimed at its development
In its further transition to inflation targeting in 2014, the Bank of Russia will continue to develop interest rate policy framework based on the interest rate corridor, with the focus on decreasing the number of instruments and eliminating their duplication.
Bank of Russia one-week open market operations will remain the main instrument for managing banking sector liquidity. In order to create scope for the increase in the interbank market activity and development of credit institutions’ liquidity management, starting 1 February 2014 the Bank of Russia stops conducting one-day REPO auctions on a daily basis and starts using one- to six-day REPO auctions as fine-tuning operations. In case of sharp changes in the level of banking sector liquidity caused by autonomous factors or changes in the demand of credit institutions for liquidity the Bank of Russia will promptly take decision on conducting these auctions.
Standing facility liquidity provision operations will be conducted for one day only and collateralised by different types of assets (securities, credit claims, promissory notes, guarantees, gold, foreign currency). The single interest rate on these instruments will form the upper border of Bank of Russia interest rate corridor. Starting 1 February 2014, the Bank of Russia will suspend all standing facilities for terms exceeding 1 day.
Starting 1 February 2014, the Bank of Russia will also suspend the following regular
open market liquidity provision operations: lombard loans for all terms and three- to
In addition to the main open market and standing facility liquidity management operations the Bank of Russia will conduct auctions for the provision of three-month loans, secured by non-marketable assets, with floating interest rate on a regular basis. The floating component of the interest rate on credit auctions is linked to the level of Bank of Russia key rate. The minimum spread to the key rate will be set by the decision of the Bank of Russia Board of Directors (currently set at 0.25 percentage points). (Information “On auctions for the provision of loans, secured by non-marketable assets, with floating interest rate”). The use of this instrument by credit institutions will help decrease market collateral for main refinancing operations, held by the Bank of Russia, thereby improving the interbank market efficiency. The conduct of operations with floating rate will intensify the monetary policy signal, as the changes in interest rates will be transformed into the change of the cost of funds, previously provided by the Bank of Russia to credit institutions.
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