On Bank of Russia monetary policy

Monetary policy seeks to ensure price stability

The Bank of Russia implements monetary policy under the inflation targeting regime, its main aim being to ensure and protect the ruble exchange rate sustainability by maintaining price stability, which ultimately means the attainment of a stable and low inflation.

The price stability allows preserving a purchasing power of the national currency which is one of the prerequisites of a stable wellbeing of Russian people. Ensuring a sustainably low inflation creates a more predictable environment for the economic activity of manufacturers as well as households. It facilitates their planning and decision-making on consumption and investment issues, and protects their savings. Thus, price stability helps decrease economic uncertainty and creates funding sources for long-term investment, which lays down the grounds for a robust and well-balanced economic growth.

Operating under the inflation targeting regime, the Bank of Russia formulates the quantitative inflation target which is published in the Guidelines for the Single Monetary Policy submitted for the consideration by the Government, the State Duma of Federal Council and the President of the Russian Federation. Inflation target is set for the consumer price growth indicator relative to the same month of previous year (the indicator is calculated by the Federal State Statistics Service). Considering structural peculiarities of the Russian economy and inflation dynamics in Russia’s trading partner countries, the target is set to reduce inflation to 4% by 2017 and to keep to close to that level in the medium run.

The Bank of Russia does not set any specific targets for the ruble exchange rate, nor does it interfere in the ruble dynamics trends to be shaped by macroeconomic fundamentals. The central bank shifted to the floating exchange rate regime, which raises the interest rate policy efficiency aimed at maintaining price stability, and also helps economy adapt to external changes and enhances its resilience to the impact of external factors.

The Bank of Russia does not set quantitative targets for other economic indicators, including for economic growth rates. However, in the decision making it relies on the comprehensive analysis of the economy and considers a broad range of indicators. Over a longer-term horizon, the economy growth potential is determined by the following objective factors: the physical quantity and quality of production resources, including labour force, educational and technological levels, and business environment. Inflation targeting helps create conditions for sustainable economic growth in the medium run by advancing economic certainty, and creating long-term savings and investment.

Together with price stability, the Bank of Russia also seeks to maintain a stable functioning and development of the banking sector, financial market and payment system, which form an essential basis for conducting an efficient monetary policy and for achieving the inflation targets over the long-term perspective.

Monetary policy pass-through effect on the economy

To meet its inflation target, the Bank of Russia employs the system of monetary policy instruments, the centre of which is formed by the key rate. Decisions on the key rate and other interest rate parameters are regularly made by the Bank of Russia Board of Directors. Similarly to the majority of central banks pursuing their monetary policy under the inflation targeting regime, the Bank of Russia makes its own decisions as to how the inflation target shall be achieved and what instruments shall be used.

Bank of Russia interest rate dynamics influence money market short-term interest rates, the change of which, in its turn, triggers the movements of longer-term interest rates in the economy (in particular, those of bank loans and deposits) and of a broad range of other financial variables, including foreign currency exchange rates. Changes in monetary and financial indicators influence households and enterprises’ decisions to consume, save and invest. This is how monetary policy’s key rate movements translate into price dynamics and economic activity.

The monetary policy pass-through effect on the economy occurs with a certain time lag, and its full implementation takes rather much time. In view of this, the Bank of Russia Bank makes monetary policy decisions on the basis of the economic outlook and assessment of risks to achieve the inflation target over the mid-term horizon, and also on possible risks to economic growth and financial stability. The Bank of Russia regularly informs on the key parameters of the macroeconomic forecast in quarterly issues of the Monetary Policy Report, and in the Guidelines for the Single Monetary Policy.

Disclosure of information by the Bank of Russia

The Bank of Russia seeks to maintain an active communication policy by clarifying the reasons and expected outcome of its monetary policy decisions.

Increase in the awareness of and confidence in Bank of Russia policy, decrease in uncertainty with regard to central bank decisions raises the monetary policy efficiency, i.e. strengthens its impact on decisions made by economic agents across all levels, and, eventually, on inflation expectations and inflation itself.

The main channels for disclosing information on monetary policy issues are Bank of Russia web-site (press releases and publications, including quarterly issues of the Monetary Policy Report, Guidelines of the Single State Monetary Policy and Bank of Russia Annual Report), and respective public speeches of Bank of Russia management, including regular press conferences on the outcomes of Board of Director meetings and comments on topical issues in mass media.

Guidelines of the Single State Monetary Policy and Bank of Russia Annual Report are discussed openly by state authorities and professional community, including the Russian Federation Government. They are submitted for consideration to the State Duma of the Federation Council and to the President of the Russian Federation.

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