Management of Interest Rates will Become a Key Point of the Monetary Regulation
By 2015, the Russian Federation is planning to switch over to inflation targeting. Within the frameworks of the strategy of gradual slowdown of growth rates of prices, a goal has been set to reduce the rate of inflation to 4%-5% a year by 2014. It is to be noted that for 2013 the target band of the inflation rate is 5%-6%.
The main objective of the exchange rate policy of the Central Bank of Russia consists in reduction of direct interventions in the formation of the exchange rate and creation of conditions for a switch-over to the floating exchange rate regime (by 2015).
As intervention by the Central Bank of Russia in functioning of the foreign exchange market becomes less, the policy of management of interest rates by means of provision and withdrawal of liquidity will be the key point of monetary regulation. Decisions on changing of interest rates will be taken, generally, on a monthly basis with analysis of inflationary processes and development of economic activities taken into account.
Other important objectives set by the Central Bank of Russia include:
- Maintaining of financial stability (for implementation of that goal the policy the Central Bank of Russia will be based on the best international practice used in supervision over risks, transparency of credit institutions' activities and diversified control over financial institutions depending on their system importance); it is believed that within the frameworks of achievement of the above goal importance should be attached to analysis of the banking system's ability to withstand shocks with taking into account their high dependence on refinancing by state authorities;
- Development of the infrastructure of financial markets and expansion of their capacity; with a switch-over to inflation targeting the market of financial derivatives which permit to hedge, among other things, foreign exchange risks will have a special role to play as such risks get higher with growing volatility of the ruble exchange rate;
- Harmonization between the monetary policy and budget and fiscal policy of the Government of the Russian Federation; it is difficult to overestimate the importance of such harmonization in a situation of both contribution of tariffs regulated by the government to the rate of inflation and the impact of the budget and fiscal policy on the money supply in the Russian Federation; indeed, the balanced budget policy aimed at reduction of the budget deficit and the country's macroeconomic risks will contribute to achievement by the Central Bank of the Russian Federation of its inflation target, however, to influence the budget and fiscal policy the Central Bank of Russia has minimum abilities;
- Higher information openness of the Central Bank of Russia in the monetary policy; in the past few years the Central Bank of Russia has made progress in making its policy more transparent and at present it is close to the best international standards; at the same time, the Central Bank of Russia has potential to upgrade the quality of its analytical work, analysis of macroeconomic situation, as well as more detailed explanation to economic agents of both reasons for which it has taken decisions and the effect of such decisions.
P.V. Trunin, PhD (Economics), Head of the Monetary policy Department