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. Last Updated: 07/27/2016

Bank to Hike Interest Rates

The Russian Central Bank gave notice Tuesday that in the face of skyrocketing inflation, it is likely to raise the basic interest rate at which it lends to Russia's commercial banks, the news agency Interfax reported.

Chairman of the bank, Viktor Gerashchenko, told Interfax that Russia's inflation rate exceeded 2000 percent annually, and that the Central Bank was looking at the increasing its discount rate - its basic lending rate to commercial banks.

Speaking in Tomsk where he traveled with Prime Minister Viktor Chernomyrdin, Gerashchenko said "it could not be excluded" that from March 1 a higher discount rate would be set for bank credit. Gerashchenko said it could rise to 100 percent from its current level of 80 percent.

The government has criticized the Central Bank and said it was controlled by parliament for issuing cheap credits, and blamed it for Russia's high inflation and falling ruble.

Tuesday's statement, which has been expected in financial circles, is the first indication that the Central Bank has switched from a policy of issuing credits in order to maintain production and may now use tighter money control to rein in inflation.

Although nominally high, when inflation is taken into account, Russian interest rates are practically the lowest in the world. Interbank interest rates in January were around 95 percent. Commercial interest rates were between 110 and 130 percent.

"When people say that the Central Bank is in some way torpedoing reforms, and that the parliament is in some way telling the bank what to do, that is just untrue". Gerashchenko told Interfax.

Boris Khenkin, economic analyst for Menatep Bank, said an increase in the discount rate would produce a much bigger percentage rise in other interest rates. He said he did not think a rate increase would have a sudden impact on inflation, because of the huge credits which had already been issued in the first quarter of this year, but some reduction might be felt in the next quarter.

Boris Sergeyev, director of information and research at Tokobank, said a rate rise would put pressure on many firms which relied on cheap credits. He expected the Central Bank would now move to a policy of adjusting its discount rate on a monthly basis.