Voprosy Ekonomiki journal published an article by Andrey Zubarev, Senior Researcher at the Department for Digital Finance, and Sofia Kolesnic, Researcher at the Monetary Policy Department, where authors considered the Asymmetry of the Bank of Russia’s monetary policy: Effects on macroeconomic indicators
In a comment for RBC Sofia Kolesnic spoke in more detail about the reasons for the discovered effect and why it is advantageous for firms to respond to shocks asymmetrically.
According to the study, a key rate reduction accelerates consumer price growth almost twice as fast as a comparable rate increase slows it. "When monetary policy is mitigated, the effect on prices is approximately 1.8 times higher than when it is tightened," explained Sofia Kolesnik.
Inflation's response also varies in speed: prices begin to rise after just three months of policy easing, while the response to tightening is delayed by almost a year and is significantly weaker.
Experts identify several reasons for this asymmetry:
- Wage rigidity in terms of reduction. Nominal wages of workers are flexible upward, but practically do not decline, thereby limiting deflationary pressure when the rate increases.
- Peculiarities of household behavior. Households react more sharply to inflationary signals than to disinflationary ones, which results in overestimation of inflation risks.
- Pricing by companies. Companies are quick to raise prices when demand increases, but reluctant to lower them when demand contracts.
- Asymmetry in the operation of the currency channel. A rate cut results in a persistent weakening of the ruble, increasing inflation, while growth has almost no effect on the exchange rate.
- Periods of economic overheating. Amid high production capacity utilization, even a small increase in demand causes a sharp jump in prices.
According to authors, the findings require the Central Bank to be extremely cautious when easing monetary conditions. "The cost of a mistake with a sudden start to the rate-cutting cycle is higher. Therefore, given the additional inflationary channel through exchange rate depreciation, the transition from tight conditions to easing should be cautious," commented Sofia Kolesnik.