Even after lowering inflation to 4% per year, Russia remains one of the countries where inflation is particularly high, said the head of the Bank of Russia Elvira Nabiullina. However, its reduction to 2%, following the example of most developed countries, according to the head of the Central Bank, may create new challenges for “emerging economy” of Russia.
“In countries where markets are formed, is undergoing major structural change: some sectors grow faster, others slower. If the overall price index is 2%, in some sectors, prices still are rising faster, and others may even experience deflation. Massive deflation is harmful: it reduces the incentives for investment and to avoid it in a wide range of sectors, the inflation rate should be around 4%,” — said Nabiullina in an interview with Forbes magazine, published on 24 November 2016 (available in paper edition).
According to the head of the Central Bank, with inflation above 4% per year of investment “will not”, but because at present the main task of the regulator is to ensure stable and low inflation and, as a result, consistently low interest rates. Both of these factors, according to Nabiullina, is more important than stable exchange rate, the fixation of which to the high volatility of the external environment can be devastating.
“The ruble will directly affect importers, exporters and those who have debts in foreign currency. But the interest rate and inflation affect everyone. Basically we ruble transactions, it is very important that the ruble is not depreciated. Inflation is 4% — a level that allows not to think too much about the depreciation of ruble assets and provides sufficient stability”, — stressed the head of the Central Bank.
Nabiullina also noted that low inflation will put the domestic business in a completely new environment.
“We’re not used to it, because we have had low inflation, she always remained strong and it was always a risk factor,” – said the head of the Central Bank.
Approved by the leadership of the Central Bank monetary policy of the regulator provides for the reduction of inflation to 4% and maintaining it close to this level in the medium term.
Speaking in mid-October 2016 at the forum “Russia calling!”, Nabiullina called the inflation rate to 4% “level of investment”. She said that for stimulation of transition of the Russian economy to a savings-investment model of the Central Bank is planning to maintain positive real rates by a few percentage points above inflation. “Our calculations show that the equilibrium level of interest rates should be 2.5–3% but with inflation of 4%”, — explained Elvira. Only in this case, in her opinion, the level of the key rate can drop to 6-7%.
For the first ten months of 2016, inflation in Russia amounted to 4.5%, while a year earlier by the end of October, it was 11.2 percent. The government’s bill on amendments to the 2016 budget provides for a reduction in the planned rate of inflation to 5.8%, the forecast — to 5.5–5.6 percent. The annual inflation rate of 4%, the Bank of Russia intends to achieve in 2017.
The head of RUSNANO Anatoly Chubais said that if the Central Bank can achieve the target of inflation , Nabiullina will be to erect a monument, as inflation at 4% per annum will open other “business opportunities”. “For it is certainly possible to erect a monument, Elvira Nabiullina, without irony, I say seriously. Inflation of 4-5% is another business horizon is the ability to see their business not for a year, and at least 3-5 years, it is a radical lowering interest rates and increasing credit availability, and, of course, the real prerequisite for economic growth,” Chubais said.