The CBR explained the consequences of too soft or hard OST

The CBR explained the consequences of too soft or hard OST


The Central Bank noted that the main task of the controller is inflation at 4% in 2017. To achieve this figure, the Central Bank chose a moderately tight monetary policy.

MOSCOW, 2 Nov. To achieve stable low inflation in Russia is impossible the holding of an excessively loose or excessively tight monetary policy (DCT), said first Deputy Chairman of Bank of Russia Dmitry Tulin at the parliamentary hearings in the state Duma.

The main objective of the CBR is the inflation target to 4% in 2017. To achieve this, the regulator has chosen a moderately tight monetary policy. However, while inflation “shows character” and is in no hurry to slow down, which is not conducive to high inflationary expectations in the country. But the Bank of Russia believes that inflation will decline more than twice, and a year later, in October 2016, will be reduced to 7% from 15.6% currently.

“We need to have inflation with a stable pace, better a definite rate of inflation, a stable, better — consistently low. How to achieve this? Monetary conditions should be not too soft and not too hard. And quantitative parameters of the DCT must match the readiness of the real sector of the economy use money for the purpose of commodity production and commodity turnover”, said Tulin.

So, on the one hand, according to him, is too soft a policy by the regulator does not stimulate manufacturers and sellers to reduce costs, increase efficiency, and boost productivity. “It spurs inflation, but does not necessarily contributes to economic growth”, — said the first Deputy Chairman of the Central Bank.

The consequences of too rigid DCT

In turn, too hard unbalanced policy can artificially retard economic growth, lead to mass bankruptcies up to destruction of whole industries in the economy, says Tulin. “But the most interesting and paradoxical that such overly tight monetary policy does not necessarily leads to the success of the fight against inflation,” — said the first Deputy Chairman.

According to Tulin, the reasons of such a scenario lie in structural imbalances of the Russian economy.

He also noted that the tightening of monetary conditions has a different effect on the situation in various industries and segments of the real sector. He cited the example of industries with low price elasticity of demand (in General, the production of essential goods and food).

“While the market is not saturated with a huge oversupply of goods, and on the part of manufacturers and sellers in competition, it is difficult to expect reduction in the elasticity of demand, and the possibility that we hold a strict policy will be limited,” said Thulin.

However, according to him, industries with high elasticity of demand — especially in the manufacturing sector, especially those working in the domestic market with high dependence on imports, a tightening of monetary policy by the Central Bank just killing them.

“If only they don’t work on a large government project, they are not able to pass their higher costs on prices, they can just go away, to cease to exist, to be ruined”, he said.

The Central Bank sees economic problems and the scope of decisions

“All these problems we understand very well the Central Bank… we’re trying to study and understand the position of the industry, segments, economic sectors, specific enterprises, constantly hold meetings with interested people, business communities, Industrialists. These problems we see,” said Thulin.

However, in his opinion, from the point of view of influence on the economy, on growth, on inflation, a huge potential lies in improving the efficiency of DCT. However, he believes that this potential lies in the structure of credit investments of the banking sector.