A Switchover to Interval Inflation Rate Targeting is Needed

A topic of the debates at the 9th Gaidar Forum was the efficiency of the Russian Central Bank’s monetary policy and inflation targeting. These issues were dealt with at the expert discussion: “The Challenges of the Monetary Policy of the Central Bank of Russia amid Slowdown of the Rate of Inflation”.

In 2017 the rate of inflation amounted to about 2.5 % instead of 4% as a result of the prudent policy of the Central Bank of Russia and a number of incidental individual factors which favorably arose last year. Such factors may include good climate conditions, which facilitated a record-high yield last year and a year before, which situation could not but influence the dynamics of prices of agricultural products. Also, it is appreciation of the rouble that slowed down growth in prices of import goods. Without these two factors, the inflation rate would be within the range of target indicators. Despite the fact that Russia is at the initial stage of implementation of the inflation targeting policy, the Central Bank of Russia has achieved great progress in this area, having reduced the rate of inflation below 5%. Also, the Russian Central Bank’s decision to preserve the target of 4% in 2018 is absolutely justified.

However, it is to be noted that a 4% target is an intermediary step and it is necessary to seek to achieve the level of the inflation rate typical of the majority of developed and developing countries, that is, 2.5%–3%. Further, a low wave of the inflation rate is currently observed in the world.

So, in further planning of the monetary policy the Central Bank of Russia should consider the prospect of switching over from point targeting to interval targeting within framework of which the Central Bank of Russia keeps in check the rate of inflation. For example, in 2019–2010 an interval target range of 3%-4% could be set.

As regards the 2018 inflation rate forecast, there are two factors which may push up the rate of inflation. Firstly, it is uncertainties related to sanctions (primarily on the part of the US) which can change fluctuations of the balance of payments and secondly, unpredictable climate conditions which may affects the yield dynamics. In other cases, the inflation rate is forecasted at the level of 3.5-3.7%, which is below target values.

Sergei Drobyshevsky, PhD, Economics, Academic Director, Gaidar Institute