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Russia’s Central Bank Raises Key Rate

January 6, 1995

MOSCOW (AP) _ The Central Bank of Russia increased its key refinancing rate from 180 percent to 200 percent on Friday in an apparent attempt to curb inflation.

Bank officials consider it vital for the rate _ applied to all credits granted to commercial banks _ to remain above inflation to prevent heavy borrowing, which would push spiraling prices even higher.

Many experts have said inflation has accelerated under the impact of the Russian invasion in Chechnya, which began in December, and warned the costly military action might eventually ruin plans for financial stabilization.

Annual inflation is currently calculated at roughly 200 percent, but the government’s Center for Economic Analysis said the December rate was 16.4 percent; if it stays at that level, annoual inflation would be nearly 500 percent.

Alexander Livshits, Yeltsin’s economic adviser, acknowledged Friday that the economy has started to feel the impact of the Chechen conflict, according to the Interfax news agency.

Livshits said most Russian enterprises were planning price hikes, as ``the situation in Chechnya is far from becoming normal, and it’s unclear what would happen to the budget.″

The Central Bank’s acting head, Tatiana Paramonova, ordered the increase in the refinancing rate late Thursday, Interfax reported.

``The Central Bank was apparently reacting to a rise in money supply,″ said Alexander Pochinok, deputy chairman of the budget committee in the State Duma, the lower chamber of parliament.

``That rise might have been caused by the excess volume of the Central Bank’s loans, massive growth of speculative incomes of commercial banks, or unexpected rise in budget expenditures,″ he said.

Last year, the bank continuously cut the lending rate from a high of 210 percent to 130 percent in August. Following the collapse of the ruble in October, when it plunged 21 percent in value against the dollar, it increased the rate to 170 percent.

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