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. Last Updated: 07/27/2016

Central Bank Raises Basic Lending Rate

The Russian Central Bank raised its basic lending rate Wednesday for the third time in three months, offering another sign that it intends to comply with the country's new regime of monetary and economic austerity.


The bank raised the rate it charges commercial banks for funds to 120 percent from 110 percent. It was the third hike in three months and the second hike this month alone. Rates have been increased from 80 percent to 120 percent since April 1.


In an agreement with the government signed last month, the bank agreed to limit credits to enterprises and bring the discount rate up to a level just below that charged by commercial banks, which is currently between 150 and 170 percent.


The agreement was a condition for the International Monetary Fund to deliver $3 billion in assistance in two installments. IMF Director Michel Camdessus has already approved the first $1. 5 billion of the loan and submitted it to the agency's board for approval.


The government Tuesday indicated it would observe other aspects of the agreement. First Deputy Prime Minister Oleg Soskovets, speaking to an economic forum Tuesday, said the government would raise its quotas for energy exports by 10 percent and quotas for other commodities by 20 percent from Sept. 1. Those increases were stipulated in the May agreement.


"The increases are significant", said a Western official who asked not to be named.


Raising quota levels will have far-reaching economic impacts, including putting pressure on domestic oil prices that are now only one-fifth of the world level. The quotas have been methods for keeping down prices for oil and other commodities. When producers can no longer export their products because quotas have been hit, they are forced to turn to the domestic market.


Soskovet's comments came the day after President Boris Yeltsin signed a decree freeing coal prices.


The higher quota levels will also help prop up the ruble as increased exports bring in more hard-currency and reduce the demand for foreign currency on exchange markets.


"Russia is the only country in eastern Europe where, following price liberalization and market reforms, exports have fallen", the official said.


"When you have quotas for exports, enterprises and entrepreneurs cannot benefit from changes in exchange rate because very soon they run up against ceilings".


Soskovets also said the government is committed to full elimination of all quotas by 1993 except for oil, oil products and "other products whose exports could be limited in accordance with our obligations under international agreements", he was quoted by Reuters as saying.


Russia is hoping to gain commitments for substantial foreign assistance at next month's Group of Seven leading industrial nations summit conference in Tokyo.


Soskovets said that Russia had submitted a detailed program outlining its needs in preparation for the summit, which President Boris Yeltsin is scheduled to attend.


The request included funds to support the state budget, cushion the impact of reforms and for privatization.


"Financial assistance without reform will yield nothing", Soskovets said according to Reuters. "However, reform without such assistance will hardly succeed either".