Bank of Russia to maintain its approach to monetary policy amid fiscal rule adoption

Following the decision of Russia’s Ministry of Finance to buy/sell foreign currency in the domestic FX market as it is set to adopt fiscal rules, the Bank of Russia has to communicate as follows.

The Bank of Russia will assist the Ministry of Finance in these operations in the FX market. It will close deals in the volume and terms calculated by the Ministry of Finance in compliance with the published order1. Operations to buy or sell foreign currency will be conducted regularly during the trading day.

The adoption of the fiscal rule mechanism will not affect the Bank of Russia’s approach to monetary policy:

1) The Bank of Russia will still factor fiscal policy measures into its forecasting and key rate decision making. The Bank of Russia estimates that the Ministry of Finance’s operations in the FX market beginning in February 2017 should not prevent it from delivering on its 4% inflation target by late 2017.

2) The floating exchange rate regime will hold, i.e. the ruble nominal exchange rate will not be steered through FX interventions. The Bank of Russia may carry out operations in the FX market only to sustain financial stability or accumulate international reserves. The Bank of Russia will base its decision about such operations on the assessment of the economic situation and risks irrespective of the application of the fiscal rule mechanism by the Ministry of Finance.

3) The Bank of Russia manages banking sector liquidity with due account taken for all liquidity factors. The Ministry of Finance’s operations to buy/sell foreign currency in the domestic FX market will add to the liquidity factors. The Bank of Russia estimates that the effect of these operations on liquidity will be almost immaterial.

The Bank of Russia believes that the prospective introduction of fiscal rules and their regular application will ensure more sustainable and predictable domestic environment and change the economic structure towards lower dependence on commodity exports. The fiscal rules will combine with the Bank of Russia’s inflation targeting regime to stabilise the ruble exchange rate and limit its impact on competitiveness of Russian producers.

 


1 See the press release by the Ministry of Finance of 25 January 2017.

25 January 2017

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