The Bank of Russia's board of directors decided on Sept. 13 to implement a set of measures to develop the system of monetary policy instruments as part of a transition to inflation targeting.
Measures in the policy include the introduction of a Bank of Russia key rate by the unification of interest rates on one week liquidity provision and absorption open market operations, the formation of Bank of Russia interest rate corridor and optimization of instruments for managing banking sector liquidity and changing the refinancing rate role in the system of Bank of Russia instruments.
This will increase monetary policy transparency and also improve its understanding by economic agents. This will help strengthen the interest rate and information channels of the monetary policy transmission mechanism in achieving the price stability.
The Bank of Russia interest rate corridor was formed with the key rate as its main element, following the board of director's decision to set maximum interest rates 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 on loans secured by non-marketable assets and guarantees to the level of interest rate on one day liquidity provision standing facilities.
The bank will make the refinancing rate equal to the key rate by January 1, 2016.
Bank of Russia's one week open market operations will be the main instrument for managing banking sector liquidity.
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