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Finance Focus: Why Has Central Bank Kept Policy Rate Unchanged?
December 12, 2015 18:28

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The chairperson of Russia’s Central Bank, Elvira Nabiullina, provided the rationale behind the decision to keep the regulator’s policy rate unchanged at 11 percent following the board meeting on Friday.
The head of the Bank of Russia pointed out complicated external conditions coupled with persistent unfavorable trends, including high volatility of global markets caused by frequent shifts in global investors’ sentiment and expectations.
Investors are concerned about the pace of normalization of the US Fed’s monetary policy, reassessing the appeal of particular assets. “As a result, we observe fluctuations in the world FX market, instability in the scope and directions of capital flows, and fluctuations in the stock and commodity markets,” said Ms. Nabiullina.
“Secondly, investors are persistently concerned about growth outlook in emerging markets, first of all China. The economic slowdown in China may have an adverse impact on the world economy, including commodity prices,” she added.
“Growth rates of the world economy as a whole will remain low in the next few years. Our baseline forecast assumes that the price of oil will most likely return to the average annual level of $50 per barrel in 2016,” emphasized Ms. Nabiullina.
She then turned to the national economy saying it demonstrates ability to adapt to external changes “rather quickly”. “The balance of payments was adjusted as a whole already at the start of the year, with Q3 showing economic stabilization,” she said.
In Q3, the situation in the Russian economy turned out to be more favourable than the Central Bank expected. However, consumer price growth failed to meet the regulator’s expectations. Actual inflation runs close to the upper band of the forecast.
“In Q3 this year, we saw net private capital inflow into Russia for the first time from 2010 Q2. Amid the downturn in risk premium, some Russian companies managed to successfully place their bonds in the international markets,” according to the chairwoman.
Exchange rate risks related to external debt repayment decreased considerably compared to the end of the previous year and the beginning of this year.
Article 75 of the Constitution of the Russian Federation establishes a special legal status of the Bank of Russia, gives it the exclusive right to issue currency (Part 1) and protect the ruble and ensure its stability, which is the main function of the Bank of Russia (Part 2). The status, purposes, functions and powers of the Bank of Russia are also spelled out in Federal Law No. 86-FZ, dated July 10, 2002, ‘On the Central Bank of the Russian Federation (Bank of Russia)’, and other federal laws.

According to Article 3 of the Federal Law ‘On the Central Bank of the Russian Federation (Bank of Russia)’, the goals of the Bank of Russia are to protect the ruble and ensure its stability, promote the development and strengthen the Russian banking system, ensure the stability and development of the national payment system, develop the financial market of the Russian Federation and ensure its stability. 

Author: Mikhail Vesely


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