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. Last Updated: 07/27/2016

State Bank Takes Tighter Line

The Central Bank has toughened its monetary policies and will keep policy tight to fight inflation and control liquidity, deputy chairman Alexander Khandruyev told a bankers' conference Thursday.


He said recent Central Bank measures, including a rise in the refinancing rate, a 30 percent cut in banks' open currency positions and a decision to raise commercial banks' reserve requirements, were part of the new policy.


"The task of the Central Bank is to control liquidity and fight inflation. Experience has shown that a moderately tight monetary policy is no longer good for us. That's why we have chosen a well thought-out tight path," he said.


Khandruyev said the Central Bank had to find a way to transfer money from financial markets to the real economy. "It is an academic question whether Russia has a lot of money or not. It does have too much money in the financial sector, but too little is coming to the real economy," he said.


Khandruyev said the bank had managed to control the ruble in December and January, despite mounting pressure due to expectations of rising inflation on a lax 1995 budget and the Chechnya military campaign.


"Despite a very difficult situation on the foreign exchange market, the Central Bank is keeping the situation under control by stabilizing dollar demand, not only on the Moscow Interbank Currency Exchange, but also on the interbank cash and non-cash markets," he said.


The ruble has fallen over 9 percent so far this year. It traded at 3,916 on the Moscow Interbank Currency Exchange on Thursday, just above its all-time low of 3,926.


Bankers say the Central Bank is selling hundreds of millions of dollars a day to satisfy demand for dollars.


Traders have said the Central Bank is running out of hard-currency reserves, but Khandruyev denied this. "The bank has enough money to keep the situation under control," he said.


Khandruyev also said the bank hoped its latest measure -- increasing banks' reserve requirements -- would tie up around 700 billion rubles ($178 million) normally used by banks for currency market speculation.


Further Central Bank measures could be an introduction of a Lombard credit system to encourage purchase of state securities, which could be used as collateral for Central Bank funds. Credits to ailing enterprises and industries could be reduced.


Another Central Bank priority would be raising capital requirements for commercial banks to protect their clients from risks and to raise Russia's banking profile.


Khandruyev said Russia's banking system was developing very dynamically, but there were signs of a banking crisis. About 500 banks out of around 2,500 finished the year with losses. "That is a very bad sign," he said.