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CNBC Transcript: Interview with Elvira Nabiullina, Governor of the Russian Central Bank


Following are excerpts from the unofficial transcript of a CNBC interview with Elvira Nabiullina, Governor of the Russian Central Bank

Geoff Cutmore: I want to start by asking you your reaction to the IMF's lower growth forecast for Russia going forward. Do you think the economy has deteriorated as much as the IMF's statement appears to suggest?

Elvira Nabiullina: On the whole the IMF forecast coincides with the forecasts and estimates of the central bank because we experience a difficult period as our economy adapts to new conditions such as low oil prices, increased volatility in international financial markets, general uncertainty. That's why such an adjustment is taking place, and this adjustment of the Russian economy will result in negative economic growth, and in this respect the estimates of the central bank are very close to the IMF estimates. According to our forecasts, next year this decline will continue and this decline will be within 1 percent, and by the end of the year we think our economy will start experiencing positive growth. The only difference between our and the IMF forecasts is on inflation. The IMF sees it to be higher than our forecasts, and it means that we should be more attentive to the inflation risks, because our task is to reduce inflation to achieve our goal of 4% by 2017.

Geoff Cutmore: That remains the outstanding target I know. But we have seen some stability come back in in the inflation numbers. Can I ask you specifically about the time that's elapsed since the last meeting in September? Have you seen any significant change in inflation rate conditions?

Elvira Nabiullina: Some increase in inflation occurred because we witnessed some deprecation in the rouble in August, resulting in some increase in inflation in September. However we don't forecast inflation will continue to grow. On the contrary it went down to 0.1 percent per week, which we witnessed practically over the whole duration of the summer. We assuming that inflation by the end of this year will be a little bit more than 12 percent, 12 to 13 percent, but then it will start dropping quite abruptly because those one-time factors that caused the inflation will have passed and also because of weak demand in the economy and our tough monetary policy.

Geoff Cutmore: You talked about the fall in the rouble, but actually the volatility seems to have gone down considerably now. I just wonder if you think that is going to be a permanent change in the trend for the Russian currency and if so, whether that does open a window for you to be more generous on the interest rate side over the fourth and into the first quarter of next year?

Elvira Nabiullina: When we make a decision on our policy rate, undoubtedly we consider all the latest data, those factors that influence both inflation and the condition of the Russian economy. And that is why during the next meeting we will be considering these factors. No doubt the rate of the rouble affects inflation and our inflation expectations. The exchange rate in turn also depends on many factors – of which a main one is the level of oil prices. We see that oil prices are quite volatile. Incidentally the rouble is a bit less volatile than oil prices. Let's hope that oil prices will be quite stable and the rouble will also be stable, but we'll make a decision on policy rate on the basis of available data. In this respect we are data dependent, and we monitor market trends attentively.

Geoff Cutmore: And how much will the external economic environment, to what extent will that matter to how you think about interest rate policy in Russia, because we know that the IMF feels that China and some other emerging economies represent a deflationary impetus for the global economy. Will that bear on your decision making? Could you give us a view on how you see some of those factors having a bearing on you?

Elvira Nabiullina: Indeed the fall in oil prices and the end of the so called commodities super cycle has led to the situation that many energy importers are facing falling inflation, deflation. In our case, the situation is the opposite. The fall in oil prices may lead to certain pressure on the rouble rate and may have inflation risks. That's why we monitor them very carefully -- all external factors, whether they put upward pressure or downward pressure on inflation -- in order to make decisions that take into account the balance of the risks of inflation and economic growth to achieve our goal to stabilize inflation.

Geoff Cutmore: And one final question, we know that there have been some challenges with domestic funding, particularly for companies as they've approached the banks. Can I ask you, do you think the funding environment is getting better or getting worse? Are the banks getting better or getting worse?

Indeed banks were in a difficult situation at the end of last year and the beginning of this year. The cost of funding increased sharply for them. They cut lending to the economy. But the situation started to change. Already from May the banks started to boost lending to the economy. And deposits from the population returned to the banking system, and over nine months the growth of deposits among the population was a bit more than 13 percent, and that's why the banks have the resources and the opportunity to provide lending to the economy. Basically their condition is quite stable. And we continuously analyse all the indicators in the banking system and we monitor the situation with bad assets to ensure the banks create adequate reserves for bad loans. In our view the banking system has adjusted to these new changed conditions and is able to boost lending to the Russian economy.

The banks started credit lending to the real sector of the economy since May and the financial situation is quite good to the banking system. We analyse all the indicators of the health of the banking system... So I think the banking system is just adapting to new reality and is ready to increase the credit to the real sector of the economy.