Gerashchenko to Cut Interest Rate

Russia's Central Bank is likely to cut its discount rate this week in response to falling market rates, bank chairman Viktor Gerashchenko said Tuesday.Gerashchenko said a final decision would be made at a meeting of the bank's directors later this week. He did not say what the new discount rate would be.This would be the third cut in the refinancing rate in just over a month. It was gradually lowered to 200 percent annually from 210 in two five-percentage-point cuts on April 29 and May 17.Bankers said a new discount-rate cut would have no impact on the market since three-month ruble interbank rates were already at a low of 170 percent annually, well below Central Bank rates.The fall in short-term ruble rates has tempted cash back into dollars despite tight central bank policing of the ruble-dollar exchange rate.Market credit levels fell drastically in April in response to relative stability on the hard-currency market and lower monthly inflation, which was 9.7 percent in April after a January peak of 22 percent.Gerashchenko said the decision to cut the refinancing rate would be a reaction to the situation on the interbank market and to the results of the Central Bank's last credit auction.At the bank's credit auction last week, where the initial rate was 190 percent, the Central Bank only managed to lend 80 billion rubles out of the 150 billion it had allotted. "The average rate at the previous credit auction was 191 percent, so I think this week we will hold a meeting of directors and will cut the rate further," Gerashchenko said.He said the results of the auction showed that the rate was unaffordable for many enterprises. "Enterprises are afraid to borrow, because they are not sure their production will sell and will be paid for," Gerashchenko said.He said, however, that the credit auction program would continue and that the auctions, now monthly, may soon be held every two weeks. The auction program was designed to rationalize credit policy by granting loans to those enterprises willing to pay market interest rates, rather than to those industries with the best connections in the government.Lower discount rates are part of government plans to support ailing state industries and to reverse a decline in industrial output which was 25 percent below year-ago levels in the first quarter of 1994.Last week, President Boris Yeltsin issued a series of decrees including lower taxes to stimulate production and tough new controls on companies' bank accounts to fight tax evasion.  (Reuters, MT)