Report: Cbank says Russia bound to remain high-inflation state

MOSCOW, Nov 24 (PRIME) -- Russia will remain a country with high inflation even when the consumer price increase reaches the central bank’s goal of 4% due to the patterns of its economy, the authority’s Chairwoman Elvira Nabiullina told Forbes magazine in an interview published on Thursday.

“In states where markets are being formed, large-scale structural changes are taking place. Some sectors grow faster, some slower. If the general index is 2%, prices still rise faster in some sectors but the rest can see deflation. Massive deflation is harmful: it reduces stimuli for investments and in order to avoid it in a broad range of sectors, the inflation level must be about 4%,” Nabiullina said.

The authority is preparing a stress economic development scenario where oil prices fall to U.S. $25 per barrel, but that would not provoke an economic disaster in Russia, Nabiullina said. In this case, the central bank will continue strict monetary policies, she said.

According to Nabiullina, a large-scale program disabling operations of fraudulent and troubled banks saved the country from a deeper crisis in 2014–2015.

“Had not we removed the weakest banks from the market in the second half of 2013 and the beginning of 2014, everything could form a domino effect at the moment when external shocks occurred because banks are interrelated. The weak links were removed on time, which is why the effect of shocks turned out to be much milder. The banking system in general went through 2014–2015 quite decently,” Nabiullina said.

She said that troubled banks make it difficult to increase the lending of the economy because they will use cheaper money to cover the liquidity gaps.

The central bank does not pursue any certain target number of licensed banks, the goal is to achieve a brand new work quality, Nabiullina said.

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