Inflation Must Be Tackled: Russia’s Central Bank Chief
"Russia should continue targeting inflation. It is very important to continue [to pursue] a flexible currency rate policy, and important to pay attention to the stability of markets," said Elvira Nabiullina, Russia's incoming central bank chief, speaking at the "Russia Forum" business conference in Moscow.
Inflation in Russia reached 7.3 percent in February, up from 3.7 percent a year before, and has risen each month since December. Meanwhile, growth has slowed; this week, the Russian economic ministry cut the country's growth outlook for 2013 to 2.4 percent, down from 3.6 percent.
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Nabiullina said that other countries had previous targeted inflation, to the detriment of financial stability. However, she said that doing so was still valid in the case of Russia.
"The fact that our interest rates are high does give us a certain room to maneuver if the situation were to get worse. Inflation in Russia is primarily related to internal factors," Nabiullina said.
Critics of the Kremlin fear that Nabiullina, hand-picked by President Vladimir Putin to take on the central bank role, will be pressured by the government to lower interest rates to stimulate growth. On Wednesday, Prime Minister Dmitry Medvedev warned that falling commodity prices could push Russia into recession, and said the government might consider stimulus measures if the slowdown continues.
"We are not sure that the new CBR governor will be able (and want) to resist to political pressure towards monetary easing," said Julia Tsepliaeva, a market economist at BNP Paribas, in a note released after Nabiullina's speech.
"We maintain our view that her loyalty to the Kremlin could finally outweigh, and expect the first cut of the rates (25 basis points) already in July 2013. At the same time, we do not expect easing to be very aggressive in the second half of 2013, if the government keeps its generous tariff plan unchanged," Tsepliaeva added.
At the Forum, Nabiullina emphasized her support for keeping the central bank independent of government.
"I believe that being in a position, as a central bank, to influence economic growth does not mean losing independence. My view was that government officials could not sit on the board of the central bank and I am very happy that has been upheld," she said.
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Nabiullina added that the future economic growth of Russia was dependent on improving the investment climate and reducing the country's dependence on its oil and gas industries, which make up a fifth of its economy. Russia has experienced slower growth now for five consecutive quarters and industrial output was flat in the first quarter of 2013, as Russia was hit by the decline in oil prices.