MOSCOW, Mar 1 (PRIME) -- Russia’s central bank has been criticized since the 2014 crisis as it increases its key rate, but has no plans to reject its policy, Central Bank Chairwoman Elvira Nabiullina said in an interview to Finance & Development magazine published late on Thursday.
“Once again, we’ve faced critics because of the key rate, but we also see how fast people started to take low inflation as normal, how much they are concerned about its growth. And this helps to set our priorities straight: low inflation is important for everyone, we’ll do what’s needed to keep it within the (4%) target in spite of critics,” she said as quoted by Finance & Development.
The central bank started preparing the monetary policy for a switch to the inflation targeting regime after a 2008 crisis. There were many critics of the decision then, saying that the regime would reduce efficiency of the Russian economy as it is largely dependent on natural resources.
“When some people talk about what happened in 2014, they say that everything should have been done earlier… There is also the opposite criticism, which holds that when we raised the interest rate and floated the exchange rate, it was a mistake not to intervene in the foreign exchange market,” she said.
“However, I believe it was absolutely necessary to go through that stage. To bring about a change in policy, it was important for people to see that the exchange rate was in fact floating and, therefore, that it should find its equilibrium level in the market. If we had intervened, we would have continued to waste gold and foreign exchange reserves while stoking expectations of further devaluation.”
She also said that the central bank’s approach as a mega-regulator has its advantages.
“In our view, the mega-regulator approach has many benefits that became evident—for example, when we began to restructure the three large groups. We were able to take a consolidated view of an entire group and identify the risks within it, and that allowed us to understand the scale of the problems in those groups. A holistic view of financial regulation also reduces regulatory arbitrage and makes it easier to ensure uniform approaches and standards,” she said.
One aspect of the Russian economy is that large banks are part of groups that unite insurance companies and private pension funds, which mixes risks and demands the view of a whole picture instead of looking just at the banking sector, she said.
There are also drawbacks for the mega-regulator approach, as the central bank issues money on the one hand and supervises banks, including revision of licenses, on the other hand.
“It makes room for the public demand for the mega-regulator to solve banks’ problems by issuing money as we couldn’t prevent their collapses. And the mega-regulator has to survive under this pressure and should build walls between, for example, banking supervision and monetary policy,” she said, adding that she still though that the approach was very promising given the way the financial markets are developing.
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