Russia’s economy is facing a different range of issues than those facing the US, Japan and the eurozone and so the central bank has to take a different approach, Russia’s central bank governor told CNBC in Moscow, questioning whether other central banks still had the means to influence their economies.
“Whether (other) central banks still have in their possession the types of tools to influence this situation (is the subject of a very broad discussion),” Elvira Nabiullina said.
“Whether they are already finding themselves on the brink of negative interest rates and some are already in negative interest rate territory. These are most certainly not trivial problems. But as far as the Russian economy is concerned, we find ourselves in a totally different situation,” she said.
Nabiullina was critical of the environment of easy monetary policy that other central banks have created in recent years with their quantitative easing programs. These were aimed at boosting liquidity, investment and economic growth but they have not necessarily translated into investment in the real economy.
Rather, there has been increased liquidity in financial markets, prompting concerns of an equity and bond bubble that will burst when QE programs are eventually wound down and monetary policy “normalized.”
Nabiullina warned that “because of the continued easing of monetary policy in many countries there is also the possibility that a higher level of financial market volatility will persist.”
While central banks in Japan and the eurozone are trying to boost inflation and growth, the Russian central bank is trying to combat high inflation, brought on by international sanctions and a slump in the oil price that sent the Russia ruble into a tailspin and caused a spike in prices and a recession.
This has posed a challenge for Russia’s central bank which made tackling rampant inflation its priority, rather than promoting growth with lower interest rates. The inflation rate is slowly coming down, however (it stood at 6.6% in September) and last week, the central bank cut its key interest rate for the second time in a year, lowering the rate to 10%.
It cited the slowdown in inflation as a reason for its decision, although it warned that economic activity remained “unstable”.
The bank said that it would continue its “gradual rate cut strategy” in order to stabilize the rate of inflation to 4% by 2017.
