The bank of Russia on main directions of monetary policy for 2011–2013

At the onset of November the CB of Russia submitted to the State Duma for review "Main directions of unified government monetary policy for 2011 and for the period of 2012-2013".


The Bank of Russia has clearly specified in this document its principal aim for 2011–2013 – hold down inflation at 5-7% annual. At the same time, the Bank of Russia doesn’t set quantitative limits on the Rubles exchange rate and confirms transition to the Ruble floating exchange rate simultaneously evening out of the exchange rate volatility.  

To our opinion, such strategy will allow the Bank of Russia to implement more efficiently its monetary policy without attempting to reach two contradictory goals. At the same time, in the medium term the Bank of Russia will not be able to stay aside from interventions in the exchange rate process (besides evening out of volatility) due to high dependence of Russian economy on global prices. The Central Bank interventions, most likely, will be more intense during sharp changes in demand and supply on the currency market. We think that in these periods of time preparedness of the CB to floating exchange rate will be tested.  

The following monetary policy targets in medium term perspective can be singled out:
• Increased role of the CB’s refinancing rate in reducing inflation and inflationary expectations (narrowing of the interest rate corridor);
• Fazing out of anticrisis measures;
• Consolidation and capitalization in the banking sector;
• Taking into account the situation on the financial markets in the implementation of the monetary policy;
• Increased transparency of the monetary policy and improvements in similar efforts.

Regarding forecasts of macroeconomic indices incorporated in the Main directions, increase of monetary base in the narrow definition in 2011 will come to 7.7%–19.4%. International reserves by the yearend 2011 may reach 478-576 bln USD. The forecast is based on three scenarios. Intermediary scenario is based on the oil price for 2011 at 75 bbl/USD which is in line with the RF Government forecast.

On the whole, the CB’s forecast is rather realistic. Implementation of the plan on monetary aggregates will depend on capital flow development. The version of Main directions submitted to the State Duma contains index of the capital flight from Russia in 2010 has already been raised from 9 to 22 bln USD which demonstrates low forecasting of this index.

P.V. Trunin – Head of Monetary Policy Lab, PhD (economics)