Russian cbanker says can start neutral policy faster than planned

ROSTOV-ON-DON, Feb 1 (PRIME) -- The Russian central bank does not rule out a faster launch of a neutral monetary policy than planned earlier and that a 6-7% key rate would be good for it, Chairwoman Elvira Nabiullina told reporters on Thursday.

“Now we see that devaluation risks arising from external factors have faded, this is why we do not rule out that we will switch to a neutral monetary and credit policy a little faster than we thought,” the chairwoman said.

“We see room for easing the monetary and credit policy. And we will certainly be considering the size of a step next week at a meeting of the board of directors. We do not rule out a pause but do not rule out a (key) rate reduction as well, do not rule out a varied step size.”

The central bank sees no deflation risks, but inflation expectations are yet to match the central bank’s 4% target, they are volatile and react to both internal and external factors.

“We are not so much worried by the level of inflationary expectiation, but by the fact that they are not anchored and can react to various external and internal phenomena,” Nabiullina said.

Russia’s consumer price inflation fell to an all-time low of 2.5% in 2017. The central bank expects consumer prices to grow 3.5-4% in 2018, but households’ December inflationary expectations for the next 12 months amounted to 8.7%.

Nabiullina said that risks of ruble weakening due to external factors, such as a decline of oil prices, have faded.

She said that the central bank is taking the risks from new U.S. sanctions into consideration and sees the situation as uncertain.

A possible U.S. prohibition to invest in Russian OFZ bonds can only trigger a knee-jerk reaction, Nabiullina said. “We have assessed (the risk), have evaluated the influence of two possible scenarios: of a scenario where there is a prohibition to buy new bonds and a prohibition to hold bonds … Of course, both decisions can trigger certain volatility on the state debt market but we think that even if there is initially a short-term volatility, markets will come to balance after that.”

She separately said that the central bank has not decided to establish a special entity to merge the debt of banks undergoing bailout.

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