Russia’s Nabiullina on rate decision, rouble and monetary policy

MOSCOW (Reuters) – Russian Central Bank Governor Elvira Nabiullina and her deputy Alexei Zabotkin addressed a news conference on Friday after the central bank unexpectedly held its key rate at 21%.

Nabiullina and Zabotkin spoke in Russian. The quotes below were translated into English by Reuters.

NABIULLINA ON THE RATE DECISION

“We considered three options: (keeping the rate) unchanged; an increase to 22%; and an increase to 23%.”

“Based on the Board’s discussion, the Board felt that, from a forward-looking policy perspective, the stronger signal was that credit growth was slowing. If this judgment is confirmed by the February meeting, it could be argued that we have achieved the required monetary tightness.”

*ZABOTKIN ON THE RATE DECISION

“The decision to leave the rate at 21% was motivated by the fact that the data over the past six weeks, which describe both actual lending activity and the intention to grow loan portfolios further, demonstrate quite convincingly that it’s very possible that the required tightness in monetary conditions needed to slow inflation has already been achieved.”

NABIULLINA ON THE IMPACT OF MONETARY POLICY

“Given the lags of different types of policy, we are now at the time of maximum impact of everything that has been done as a tightening of monetary policy since mid-23 on inflation…”

“Our policy is aimed at avoiding extreme scenarios. That is, we can’t let the economy overheat further, we need to let the overheating subside, and at the same time we need to avoid that there will be over-cooling. So we are watching this carefully.”

NABIULLINA ON CRITICISM OF TIGHT MONETARY POLICY

“Criticism of our policy stance escalates during periods of high rates and during periods of the rate hike cycle… We make our decision based on our assessment of the situation and our forecast, and in assessing this situation we have recently been quite actively engaged with both banks and the real sector of economy in order to understand what is happening in the economy.”

NABIULLINA ON THE EFFECTIVENESS OF A HIGH KEY RATE AND A ‘PLAN B’ FOR TAMING INFLATION

“I am convinced that the key rate is working; if it had not been raised, inflation would be much higher… But the task of monetary policy is not to reduce inflation at any cost. Our task is much more complicated: to slow down the growth of demand in such a way that it does not prevent the economy from building up its production capacity and potential. That is why we move gradually so as not to do any harm.”

“And now we see that under the influence of the interest rate, under the influence of bank regulation measures, lending has slowed down in all segments. And if such dynamics of lending continue, it will gradually affect both demand and inflation. Of course, we would all like the price growth to slow down as quickly as possible, but the economy is in an unusual situation. A lot of factors are making it difficult for our rate to have an impact on inflation, and we recognise that. So our plan B is, well, the key rate plus patience.”

NABIULLINA ON THE ROUBLE EXCHANGE RATE

“…We do not conduct currency operations based on the level of the exchange rate, or even on increased volatility. Why? Because we believe that the market should find an equilibrium. If we start intervening at such moments of even increased volatility, market participants will have a feeling that the exchange rate is artificial now, because it is supported by the Central Bank. If the Central Bank leaves, there will be additional weakening of the exchange rate. This fuels devaluation expectations and prevents stabilisation of the exchange rate at some level of equilibrium.”

“…We believe that the exchange rate should remain floating. And then there will be more confidence in its market nature.”

*”We don’t think (that today’s rate decision will contribute to the rouble’s weakening) because the exchange rate now depends to a greater extent on the trade balance.”

*NABIULLINA ON CURRENCY EXCHANGES ON THE MARKET:

“Our exchange rate is floating, we have no goal to maintain it at a certain level…We carry out currency interventions…if there are risks to financial stability… Now we do not see such risks”.

*NABIULLINA ON CRYPTOCURRENCY:

“We continue to believe that cryptocurrencies should not be used as a means of domestic payment. We do agree, support and promote projects related to the use of cryptocurrency for external payments, but for domestic payments – no.”