The Central Bank of Russia held its benchmark refinancing rate steady at 8.25%, but cut the overnight auction-based repurchase rate by 25 basis points to 5.25% and raised the fixed overnight deposit rate by 25 basis points to 3.75%. The Bank said: "The decision was supported by the assessment of inflation risks and risks to the sustainability of economic growth, including those associated with the uncertainty of the outlook for global economic activity, as well as of current money market conditions and the dynamics of the factors affecting banking sector liquidity. Implemented decision aimed at narrowing the gap between interest rates on the Bank of Russia liquidity provision and absorption operations should contribute to restrain money market interest rates volatility regarding the risks of the shortage of the rouble liquidity in the banking sector."
The Russian central bank previously left interest rates unchanged, while it last raised the fixed overnight deposit rate by 25bps to 3.50% in May, and the benchmark refinancing rate by 25 basis points to 8.25% in April this year. Russia reported annual inflation of 8.2% in August, down from 9% in July, and 9.4% in June, meanwhile Bank Chairman Sergey Ignatiev is trying to keep inflation between 6% and 7%. Deputy Economy Minister, Andrei Klepach, has previously said full-year inflation may be towards the lower end of the government's 6.5-7.5% forecast. Russian economic growth slowed to 4.1% in the first quarter of 2011, down from 4.5% in the December quarter of 2010; the IMF is expecting 4.5% growth for the full year.