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. Last Updated: 07/27/2016

Vyugin: CB to Increase Its Market Presence

The Central Bank plans to become a more active player on local financial markets and hopes its instruments and rates will become benchmarks for banks within a year, its first deputy chairman said Friday.

Oleg Vyugin said the bank intended to change the way it refinances commercial banks by widening the range of instruments.

"I want to make the Central Bank a more active participant of the financial market, not a passive one, as it is today," Vyugin said in an interview. "The bank effectively uses two instruments on the market: trading hard currency and attracting money on deposits. The rest is practically not used. As a result, commercial banks are not refinanced."

The 1998 economic crisis all but deprived commercial banks of the government securities market, and the collapse of the system made the Central Bank's refinancing rate virtually useless.

Vyugin said the Central Bank should gradually change the rules of Lombard and repo auctions as the excess liquidity problem was resolved. The current Lombard auction terms were unattractive for banks, he said.

"I think the terms may be changed: Tenor could be made longer, rates may be changed. But these are still my proposals, no such decisions have been taken so far," he said.

Vyugin said the Central Bank should also change the way it attracted deposits from commercial banks.

"The Central Bank has taken a passive stance on deposits: It sets the rates and waits to see whether banks will bring in money or not," he said.

He said the Central Bank could hold deposit auctions to regulate the volume of attracted funds and rates.

"This is a more active position of the Central Bank on the market, and the interest rate is set not only because the board has decided so," Vyugin said.

"The goal is to make commercial banks come to the Central Bank for resources, not to bring resources to the Central Bank for temporary keeping," he said.

Vyugin said that after the Central Bank has worked out a new system of refinancing banks, it would become a centerpiece of setting rates and regulating money supply, and its interest rate would be more important for markets.

He said it would take the Central Bank about a year to launch new instruments as it would mean eliminating excessive liquidity from the market in conditions of high inflation.

"If we solve this problem, we are ready to use all well-known instruments very quickly. I am sure they will work," he said.