Statement by Bank of Russia Governor Elvira Nabiullina after the Board of Directors meeting held on 16 June 2014

The Bank of Russia Board of Directors has decided today to leave the key rate unchanged at 7.5%. We have taken this decision despite the persistently high inflation rate, which currently stands at 7.6% on an annual basis.

The decision is based on the analysis of trends in the economy and the financial sphere, as well as the medium-term macroeconomic forecast.

Considering time lags in the monetary policy transmission mechanism, the effect of the earlier increase in interest rates on inflation has not yet been exhausted. The policy of maintaining the rate at the current level in the coming months will suffice to attain the target for consumer price index in the medium term. Nevertheless, we emphasise the existence of considerable inflation risks at present, namely, the risks of inflation falling slower than required for the downward path to comply with the medium-term 4% target. If these risks materialise, the Bank of Russia will continue raising the key rate.

Our previous press conference was held in mid-February when the market participants’ attention was drawn to changes in the policy of the US Federal Reserve (the Fed) and their impact on emerging market economies (EME). However, it was actually immediately after the Bank of Russia’s February monetary policy decision that geopolitical factors came to the fore. The unconventional situation that had emerged required unconventional measures from the Bank of Russia. That is why I would like to explain in greater detail how we view the developments of the past period and how they influenced our forecasts and today’s decision.

A sharp increase in pressure on the rouble in early March was the first specific feature of the past period.

The trend towards the rouble’s depreciation had emerged before the situation aggravated in Ukraine. It was related to a change in the Fed’s policy, a rethink of investor prospects in emerging markets and the continued slowdown of the Russian economic growth. Unlike other EME central banks, the Bank of Russia did not respond to the national currency depreciation with an interest rate increase owing to a forecast of inflation falling to the target by the end of the year and slowing economic growth.

However, the situation in domestic foreign exchange market deteriorated sharply after increased tensions in March.

The indicative quotes of the major currencies against the rouble soared already before the opening of a trading session on the Moscow Exchange on 3 March. In order to prevent a speculative attack on the rouble, the Bank of Russia decided to change the parameters of its operations within the existing exchange rate policy mechanism. This decision helped restrain the rouble’s sharp depreciation caused by irrational panic sentiments of domestic forex market participants. The Bank of Russia’s decision to raise the key rate by 1.5 percentage points as part of its policy to curb inflation also played its role.

Nevertheless, the situation remained tense during most of March. The scope and the nature of pressure on the rouble can also be evidenced by data on net private capital outflow, which totalled $49.3 billion in the first quarter of 2014, according to updated estimates, and as much as $62.4 billion net of Bank of Russia currency swaps and operations on resident banks’ correspondent accounts with the Bank of Russia. About a half of this amount was registered in March. Companies and individuals were converting their rouble deposits into foreign currency deposits, while exporters reduced the sale of foreign currency proceeds. The deposit dollarisation rate grew from 17.0% in early January to a peak level of 21.0% as of 5 March. However, capital outflow was mostly of “internal” nature during this period: estimates show that about two-thirds of this outflow was linked with the conversion of household and corporate rouble deposits with Russian banks into foreign currency deposits and foreign exchange purchases rather than with the direct withdrawal of funds by residents and non-residents from Russia into foreign jurisdictions.

The situation has largely normalised by now. Since May 12, the rouble has been in the neutral range of the operational band and the Bank of Russia is conducting interventions to purchase foreign currency to replenish the Reserve Fund. The deposit dollarisation rate dropped to 19.6% in early June 2014. Updated preliminary estimates indicate that overall private capital outflow net of Bank of Russia currency swaps and operations on resident banks’ correspondent accounts with the Bank of Russia fell to $8.8 billion in April and continued to decrease in May, down to $7.4 billion.

Despite temporary adjustments made in the exchange rate policy mechanism to ensure financial stability, the Bank of Russia maintains its strategy of switching to a floating rouble exchange rate. The Bank of Russia has cut the amount of its interventions in the internal ranges of the operational band by $100 million from 22 May as threats to financial stability subsided. Nevertheless, despite their decrease, some financial stability risks have remained, prompting the Bank of Russia to keep the amount of cumulative interventions triggering a 5-kopeck shift in the operational band borders unchanged at $1.5 billion.

The acceleration of inflation was the second factor of that period that influenced the Bank of Russia’s policy.

The annual inflation rate fell in January compared with December 2013 but the rouble’s subsequent dynamics created pre-requisites for inflation acceleration. In order to stabilise expectations and inflation dynamics, the Bank of Russia Board of Directors took a decision to raise the key rate by 1.5 percentage points at its 3 March unscheduled meeting and by 0.5 percentage points at its 25 April meeting.

Considering a large time lag in the monetary policy’s effect on inflation, the measures that had been taken could not immediately stop inflation growth. Inflation accelerated to 6.9% YoY in March from 6.2% in February. A faster price increase was also registered in the sectors not directly related to imports. The annual inflation rate continued to accelerate, rising to 7.3% in April and 7.6% in May. Core inflation also increased, climbing to 7.0% in May from 5.5% in January. Moreover, producer prices in a wide range of industries grew considerably (the producer price index rose to 7.2% in April year on year from 4.7% in January).

The accelerated price growth in the Russian economy resulted from the effect of unforeseen factors, above all, the increased geopolitical tension and the ensuing depreciation of the rouble and the rise in devaluation and inflation expectations. Specific factors affecting the markets for some goods also played their role in this process. Unforeseen factors contributed up to 1.5 percentage points to annual inflation.

A forecast suggested that the effect of these shocks would cause inflation to deviate from its medium-term target, if the Bank of Russia’s monetary policy stance remained unchanged. Also, a macroeconomic forecast indicated that unless the rate was raised, inflation could stay for a long time outside the “permissible” deviation range of 1.5 percentage points above the target — the excess envisaged for a possible impact of unforeseen factors given unchanged monetary policy.

In our view, the rate hike by the Bank of Russia has not yet fully exhausted its potential. This can be explained by the extended time of response by economic agents, including banks, to the Bank of Russia’s measures.

A forecast indicates that inflation will start to slow down in the second half of 2014. This process will be facilitated by such factors as the lower planned increases in natural monopolies’ administrated tariffs, the exhaustion of the exchange rate pass-through effect due to the exchange rate stabilisation and the stronger demand for rouble deposits, as well as the aggregate output remaining below its potential level. Besides, the Ministry of Agriculture forecasts a good grain harvest this year, which will also contribute to slower inflation. The consumer price growth is predicted to slow down to 6.0% by the end of 2014, which is above the target of 5.0%, while the risks for inflation to exceed the target remain high.

The effect of the factors that have caused the current inflation acceleration will be exhausted in 2015-2016. Consumer prices will also grow slower amid an expected decrease in inflation expectations. In the absence of new shocks, the Bank of Russia’s monetary policy tightening in March and April will help to bring inflation down to the target in the medium term. Considering these factors, the Bank of Russia has decided today to keep the key rate at 7.5%.

At the same time, inflation may exceed the target in the medium term, if some risks materialise. The main risk relates to uncertainty over external political developments and their impact on the Russian economy. Volatility in the financial markets, including the forex market, is likely to increase along with further growth in inflation expectations. Food market developments may also pose risks. The traditionally high price volatility in this market is linked with uncertainty over weather conditions. Therefore, we cannot rule out considerable food price fluctuations until the end of the year. Also, considering higher planned increases in administered prices and tariffs being discussed for 2015 and 2016, their impact on inflation may be larger than expected. If these risks materialise, we’ll take decisions, proceeding from the scale of their influence on consumer prices.

The third factor influencing the Bank of Russia’s policy is the slower growth of deposits and the banks’ rising dependence on refinancing from the Bank of Russia amid the accelerating demand for loans.

Three trends negatively affected the banking sector’s liabilities in the period under review.

Firstly, the growth of the deposits slowed down. The annual rates of growth in household deposits fell sharply from the previous year: from 18.1% as of the end of 2013 to 10.5% as of 1 June 2014, according to a preliminary estimate, including foreign exchange revaluation.

Secondly, the increased volume of the Bank of Russia’s foreign exchange interventions aimed at containing exchange rate volatility considerably widened the structural liquidity shortage and, therefore, the share of Bank of Russia loans in the banking sector’s total liabilities. The Bank of Russia absorbed 1.1 trillion rouble liquidity through its foreign exchange interventions from March to the first ten-day period of May. The regulator offset the liquidity outflow by expanding the volume of its refinancing operations. The share of Bank of Russia loans in the banking sector’s liabilities increased from 6.71% as of 1 March 2014 to 8.38% as of 1 May 2014 (based on banks’ balance sheet data).

Thirdly, the terms of access for Russian companies to the markets of external borrowings were tightened considerably. CDS spreads on Russia increased, while a number of foreign banks reduced or closed their credit limits on their Russian counterparties. The volume of Russian corporate Eurobond placements shrank sharply to less than $2 billion in March-May from $19 billion in the same period last year.

As a result, despite the tightened price and non-price lending conditions in the period under review, the rates of growth in Russian banks’ lending to the non-financial sector increased rather than slowed down as could be expected in this situation. The growth in outstanding corporate loans accelerated to 17.5% in May from 12.7% as of the end of 2013. First of all, this was attributed to the increase in the volume of lending to foreign borrowers, which registered an annual growth rate of 35.6% in May (excluding foreign exchange revaluation) considerably exceeding the level of 2013 (the yearly average of 3.8% and 8.9% as of the end of the year). Lending volumes increased as the largest Russian holding companies registered in foreign jurisdictions switched to raising loans from Russian banks.

The reduced availability of borrowed funds to banks and the deterioration in maturity structure of their liabilities amid the growing demand for loans create additional challenges for the Bank of Russia’s policy. In this situation, the Bank of Russia has to introduce medium- and long-term liquidity provision measures untypical of central banks and use unconventional instruments. The regulator has increased the maximum allotment amounts at three-month auctions secured by non-marketable assets and has taken a decision to hold a repeat annual auction in July 2014 for liquidity provision against non-marketable assets. In order to make long-term liquidity more accessible, the Bank of Russia has also introduced a new refinancing instrument at a rate of 6.5% for a term of up to three years against the pledge of claims on loans provided for investment projects and against the pledge of project bonds. The Bank of Russia plans to extend this instrument to loans intended for project financing, given the transparent mechanism of project selection under the Russian Government oversight and a partial government guarantee. The Bank of Russia will set maximum allotment amounts for this instrument commensurate to the need of maintaining the general stance of its monetary policy which remained moderately tight. At the first stage, this amount has been set at 50 billion roubles.

The fourth factor is the slowing economic growth.

The growth of uncertainty could not but affect the general economic situation, first of all, investment demand, which contracted significantly in the first quarter.

The rising uncertainty was also expected to reduce consumer demand and lead to growth in savings as a precautionary measure. However, as uncertainty increased along with inflation expectations, we observed the accelerated growth in consumer activity in February-March, which slowed down in April. It is still early to say that this slowdown is a sign of stabilising inflation expectations. It is more likely this was the result of decreasing tension and uncertainty.

Net exports made a positive contribution to economic growth, while the rouble’s depreciation had a different effect on various sectors of the economy.

An economic forecast for this year suggests that the accumulated balance of negative factors will retard growth to 0.4% in 2014 compared with 1.3% in 2013. At the same time, our estimates show that quarterly economic growth rates may slightly increase in the second half of this year. However, annual growth will be low due to the high base effect of the end of 2013.

We expect investment to decrease this year as a whole but its quarterly dynamics will improve. This will also be facilitated by measures, which the Bank of Russia and the Russian Government are implementing to stimulate investment project financing. Consumer demand will slow down amid decreasing growth in household income but will remain the major driver of economic growth. Net exports will also make a positive contribution to economic growth throughout the year.

Let me note that unemployment remains low, despite a considerable economic slowdown, which we observe today. This suggests that growth acceleration is impeded by structural factors. The main problem is stagnating labour productivity amid unfavourable demographic trends. In this context, the Bank of Russia expects a slow economic growth recovery in the subsequent years to 0.9% in 2015 and 1.9% in 2016. The positive contribution of investment will be observed to recover, while the influence of net exports may fall to zero or slightly negative values.

Inflation forecasts suggest that inflation will start to slow down in the second half of the year. This will be facilitated by the decisions on planned increases in natural monopolies’ tariffs, the exhaustion of the exchange rate pass-through effect due to the exchange rate stabilisation, the low aggregate demand and an expected good harvest. Monetary factors such as the recovering demand for rouble deposits amid the slower growth in money supply and stabilised inflation expectations will also play their role. As a result, the baseline scenario envisages the consumer price growth rates to reach their targets in the medium term. At the same time, I have already mentioned that the balance of risks in this scenario is still skewed towards the inflation exceeding its target values.

Media Q&A Session

 QUESTION (RIA Novosti):

Mrs. Nabiullina, may I ask you about capital outflow? The figure for the April dynamics you mentioned at the St. Petersburg Forum was a bit different. Were swaps taken into account when publishing the data for Q1?   


As you know, capital outflow data are persistently updated. It is typical of much data and many time series. At the St. Petersburg Forum, I said that $4.6 billion was a preliminary estimate, today it is estimated at $8.8 billion, these are updated but still preliminary data. The impact of swaps and correspondent account balances is excluded. Q1 data are also updated, it amounts to $49.3 billion or $62.4 billion the impact of swaps and correspondent account transactions.

QUESTION (National Banking Journal):

What is the medium-term impact of the gas dispute on the ruble?


I expect the gas dispute to be settled. We do not expect any direct impact on the exchange rate, but in combination with other factors it may be influenced to some extent. Unfortunately, these factors – like unforeseen swings in investor sentiment – have a significant impact on the ruble exchange rate.  Currently, it may serve as one of the factors along with others. Its particular influence must be difficult to estimate.

QUESTION (Bloomberg):

Mrs. Nabiullina, Mr. Gref repeatedly says that the situation with liquidity in the market is rather acute and has suggested using such Bank of Russia instrument as long-term financing collateralised by mortgage loans, loans to small and medium-sized enterprises or agricultural producers.  What does the Bank of Russia think about this idea? Is it considered? It is a request of the principal borrower… Thank you.


I should say that liquidity conditions are sometimes quite acute. We have structural liquidity shortage due to the impact of the so called autonomous factors:  changes in cash circulation, budget flows and foreign exchange interventions. In this regard the Bank of Russia regularly extends the list of issuers, the Lombard List. We make these steps and expand liquidity provision operations in compliance with (Bank of Russia Regulation) No. 312-P secured by non-marketable assets, that is why banks address different kinds of requests to us and we always consider them.

As for mortgage loans and loans to small and medium-sized enterprises we can see potential in further securitisation of these loans. The legislation enables us to do so and we expect securitisation-related instruments to develop.

As for loans to agricultural producers, we provide liquidity operations secured by loans to agricultural producers in compliance with (Bank of Russia Regulation) No. 312-P.

QUESTION (Kommersant):

I have a question about the lags the Bank of Russia uses as a working hypothesis between the change in the key rate and its effect? Different lags are used for different kinds of changes. Can you give the details?


There are different lags for different types of changes. We believe these lags to last for six to nine months, maybe even longer. But these are more likely estimated lags. Banks have started reacting to our decisions to raise the rates recently, only in the recent months. This will last for some time.

As for the exchange rate pass-through to inflation, we estimate it to last for six to nine months, of course it will be fading.

QUESTION (Wall Street Journal):

Mrs. Nabiullina, could you, please, comment on this year capital outflow. Have the anticipations changed? What part of the capital outflow expected at the year-end will comprise the conversion of rubles into foreign currency without actual capital outflow and what will be the capital flight? Thank you.


It is rather complicated to provide a precise forecast of the capital outflow for this year: there are significant uncertainties. According to our current estimates, it will amount up to $90 billion. I have mentioned that we estimate two-thirds of capital outflow to be connected with internal conversion in Q1. Now we expect the opposite, a reverse conversion so to say. But even if we consider only one-third to be capital outflow, this amount transferred from one jurisdiction to another is quite significant and amounts to $20 billion. For the capital outflow to decrease, this amount should diminish every year and this requires a set of measures to improve investment attractiveness of the country and create favourable investment conditions. I will not explain the details, you are aware of it. Current estimates amount to $90 billion, it is a rather significant amount.

QUESTION (Interfax):

Mrs. Nabiullina, I have a question concerning liquidity. You have mentioned that you could announce liquidity credit lines already at this meeting of the Board of Directors. You have mentioned that in the interview to Reuters. Are there any decisions concerning the price parameters of these credit lines? This is the first question. I have another one.


It concerns contractual committed liquidity facility we are likely to provide in compliance with the international standards. We have not yet discussed this issue at today’s meeting of the Board of Directors. It requires further developing. We expect to discuss it at the next meetings – the first or the second one – in order to provide banks with this opportunity. I will be able to speak about specific parameters when the decisions are taken.

QUESTION (Interfax):

Can you specify for me not to make a mistake. You have mentioned your plans to expand the instruments of long-term refinancing for investment projects. Is the amount of 50 billion rubles the limit for project financing only or for all types of loans?


We have taken a decision on 50 billion rubles for three-year refinancing at the rate of 6.5% collateralized by all types of loans : sovereign loans, project bonds (there must be four companies issuing these project bonds included in our list) and project financing. At the first stage it will make 50 billion rubles. How will we decide on further possible increase of the amount of 50 billion rubles? Firstly, in our estimates, the amount should not change the overall monetary policy stance. Secondly, we will consider the demand. I believe that at the first stage the demand will make 50 billion rubles as we expect. We will see if there is a demand for greater amount.

QUESTION (National Banking Journal):

Mrs. Nabiullina, how persistent is the trend towards the ruble exchange rate stabilisation?


Hopefully, it is persistent. But as I have said the ruble exchange rate is currently influenced not only by the factors connected with the Russian economy in general and our current account usually considered by analysts, there is a great deal of unforeseen factors. It is hard to say. But we still forecast stabilisation of the ruble exchange rate in the baseline scenario.  

QUESTION (Reuters):

I have a follow-up question on loans for investment projects. When are you going to make the first allocation of funds, the first transaction? And another question concerning the use of Pension Fund resources. The decision has been taken that up to 60% of funds may be allocated to the infrastructure project and maybe even to the increase of Gazprom authorized capital. How does the Bank of Russia estimate its impact on monetary policy and the economy? Thank you.


When the liquidity is provided for the first three-year investment project… As for providing liquidity or even better to say ‘funding projects collateralised with sovereign guarantees’, we have already taken a decision. Banks have shown interest and start entering into agreements with us and as soon as they provide first loans they will be granted. This instrument has already been functioning de jure.  

As for extending project financing, it depends on the Government’s decision on the mechanism of project selection and providing sovereign guarantees. We will be ready to expand this project afterwards.

And now let’s talk about investing Pension Fund resources in infrastructure projects and possible increase of Gazprom authorised capital. It is normal to invest pension savings in long-term investment projects. This is long-term money. But in order to invest these funds we must ensure reliability and profitability of this investment because these are pension savings. We do not observe significant direct impact on monetary policy. I cannot see such impact.

QUESTION (Bloomberg):

May I ask you a technical question? How many months or years do short-term and medium-term prospects make in your estimates?


Do you mean inflation?

QUESTION (Bloomberg):

No, in general. I am talking about frequently used terms.


Yes, they are frequently used. Short-term prospects are up to one year and medium-term prospects are up to three years.


You mentioned that according to the Bank of Russia’s expectations in the medium-term perspective the Central Bank of the Russian Federation is still counting on the 4% inflation rate.  Can this be interpreted as for a time span bigger than a year, say two or three years, all these plans of the Bank of Russia to keep inflation rates within 4% are still valid?


Let me remind you that we declared a 5% target for 2014 while our forecast is 6% with the risks shifted to a higher number included.  The inflation target for the next year is 4.5% and 4% for 2016.  Despite the fact that according to our estimate by the end of this year inflation will exceed the target, our goal is still the same – that is to reach the medium-term path.  It seems to be rather critical to us now in our policy to reduce inflation and make a transition to inflation targeting to reach the medium-term perspective rather than make sure that our inflation at a specific moment is strictly within the bounds we declared earlier.

Some confusion might have been produced by the mere fact that we carry out policy in two directions simultaneously. On the one hand, we seek lower inflation, relatively stable prices as in many countries with developed markets, when at normal and non-crisis times they try to keep inflation within 2%. It is very important to us to reduce inflation to a rate adequate to the situation in the Russian economy with its modernization and structural changes to provide for some margin in the above-mentioned 4% to change relative prices.

On the other hand, while lowering inflation we simultaneously make a transition to the inflation targeting regime which calls for certain measures including those connected with the development of our policy instruments.  Let me remind you once again that last year we launched the reform and restructured the system of our instruments. Explanation of our policy – communication policy – is very important to manage mid-term inflation expectations.

This transition is still in progress.  That is why we keep our goal to reach the 4% mid-term rate although we realise the forecast will be slightly higher. We believe this is feasible.


Mrs. Nabiullina, I have a couple of questions. The first is about capital outflow.  You spoke about 2014.  Do you expect a slower capital outflow in the mid-term perspective?  Are there any predictions as far as the numbers are concerned?

And here is my second question.  You mentioned very modest rates of economic growth in 2015-2016.  After all, the Ministry for Economic Development looks forward to a greater acceleration.  In other words, you do not believe this will happen.  Also, what do you think needs to be done to accomplish this?  Thank you.


We do expect a slower capital outflow in the years to come, as early as in two years.  It might happen so that on the third year it will give way to capital inflow.  As for the nearest two years – 2015-2016 – capital outflow will be on decline.

As for the rates of economic growth, we did lower our estimates.  First and foremost, the key factor that affected the rates of economic growth to the downside is the trends in the investment activity.  We believe that the investment break the Minister for economic development talks about (I can’t agree more with him when he says this is the key factor that affects the economic growth perspective) is something we need to overcome.  It is very important to go ahead with all necessary structural changes to attract private investments thus paving the way to change the investment decline to its growth.

The first thing is for its part, the Central Bank of the Russian Federation is working to reduce inflation.  The second thing is that we carry out policy to develop financial markets.  This seems to be a big issue as the investment growth should be supported not only by budget investments and bank lending but through development of financial markets as well.  The third thing is a point use of non-standard mechanisms to provide banks with liquidity to support investment projects.

QUESTION (Vedomosti):

I also have a question.  It is about some clarification on the capital outflow.  According to your estimates for 2014 at 90 billion rubles and considering the outflow in January-May it will be next to zero by the end of the year.  What makes you think so?


Yes, we actually think this change might be produced by the reverse internal conversion of currency, so to say, by a sharp decline in capital outflow.  At the same time, we are all aware this seems to be an optimistic scenario with a possibility of a higher capital outflow.

QUESTION (Vedomosti):

I have a question about lending growth rates and deposit portfolio growth.  You said earlier that loan recipients now prefer Russian banks and as far as the corporate portfolio is concerned the Bank of Russia predicted an up to 10% growth in 2014.  Those were the expectations.  Do you think these growth rates could be much higher considering the said shift and the closure of capital markets for companies?  And here comes my deposit question.  Can household deposit growth rates be as high as they were in 2013 – 18%? How probable do you think it is?


I think lending growth rates will remain high for some time, 19% as of the beginning of June.  However, as time goes these rates will stabilise to be comparable with the rates of last year (they might be slightly higher by the end of the year) following the completion of the borrowers’ transition from external to domestic markets, on the one hand.  On the other hand, we assume that gradually external markets will also start opening.

As for household deposits, we expect a gradual recovery of deposit growth rates, but this depends on the public sentiment as well.  Things like behaviour are something difficult to predict.

QUESTION (Reuters):

If you allow, one more question about foreign exchange policy.  You said there still exists some financial instability; hence the Bank of Russia keeps the volume of cumulative interventions at $1.5 billion.   Are there any risks that the Bank of Russia will have to reconsider its foreign exchange policy based on its past experience with due account of external factors in order not to abolish the boundaries while transitioning to inflation targeting or create a tighter environment when the Bank of Russia returns to the market?  Does the Bank of Russia consider a backup mechanism in view of the experience based on March and April results?  Thank you.


Experience we gained from March and April events just adds to the correctness of the policy chosen.  Prior to the events which took place in March and April we spoke about a transition to a higher level of the exchange rate flexibility, to a free floating exchange rate with the Bank of Russia still keeping the right to launch interventions in the foreign exchange market when we see risks for our financial stability.  This is what actually happened in March as our changes in foreign exchange policy were connected with nothing else but the financial stability risks.  In my opinion, this is the way we should go.  If the financial stability risks emerge, we will have to assess their nature, the scale of potential risks and make decisions based on this analysis.  This is a sort of a common approach for many countries which made a transition to inflation targeting.

QUESTION (Bloomberg):

Can I make myself clear on one point?  In January, when addressing the Gaidar Forum, Ksenia Valentinovna (Yudaevaedit.) spoke about stagflation risks in the Russian economy.  Do you think we can speak about growth of these risks taking into account the fact that from January on both the Bank of Russia and the government raised the inflation forecast and lowered the economic growth forecast?  Do you see these risks now?  Thank you.


You know, I would quote Alexei Valentinovich (Ulyukaevedit.) once again who said ‘Don’t be carried away with terminology’ just because everyone starts talking about stagflation and what it is.  I would like to say we are all concerned about the situation when the economic growth rates can steadily decline with inflation rates keep on growing.  We believe this poses an inadmissible risk for the Russian economy.  Given that we took measures to curb inflation, not to let it grow, and return to the path of lowering price growth rates.

QUESTION (Reuters):

I would like to ask you one more question about whether or not you changed your forecast for providing the banking sector with liquidity in 2014?


The forecast for liquidity the Bank of Russia was expected to provide to the banking sector totaled about 5 trillion rubles by the end of the year.  Now that this volume was reached, we increased our forecast for liquidity provision to some 7 trillion rubles.

I would like to thank you for your attention.


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