Russia’s central bank, on the war path against inflation, said on Friday it will raise mandatory bank reserve requirements from Sept. 1, 2008 in a bid to soak up the liquidity pool from foreign borrowings.

Requirements on banks’ liabilities towards foreign lenders will rise to 8.5 percent from 7.0 percent from Sept. 1. On rouble retail deposits they will increase to 5.5 percent from 5.0 percent and on other liabilities to 6.0 percent from 5.5.
This is the second increase in just over two months, as the central bank battles to rein in inflation running at around 15 percent on an annualised basis so far this year.
“It’s not a surprise. The central bank is...making another step towards tightening monetary policy. From the three options -- appreciating the rouble, hiking interest rates and raising the reserve requirements -- it’s choosing probably the least painful one,” said Stanislav Ponomarenko, head of research for Russia at ING.
“It’s noticeable that again the biggest increase is for reserves related to external borrowing...This capital inflow is one of the key sources of liquidity in the system and thus it (the central bank) is trying to limit it, to destimulate banks from borrowing externally.”
The central bank also said it would raise reserves averaging ratio -- which allows banks to spread their reserves over time and even out periods of excess and scarce liquidity -- to 0.55 from 0.50.
Mandatory reserve requirements are the money the banks should set aside, and thus raising them limits the cash available in the system and potentially curbs price rises.
The Economy Ministry said this week it expected inflation for 2008 as a whole at 11.8 percent, hoping that a good harvest this summer would push prices lower, but analysts polled by Reuters forecast a rate of 13.2 percent.
ING’s Ponomarenko said the central bank would probably now wait for the August and September inflation figures, but if these did not show tamed prices then further monetary tightening was likely to follow.
(Source: The Guardian)