27 May 2010 12:03

Europe events not to have strong impact on Russia

ST. PETERSBURG. May 27 (Interfax) - The events in Europe will not have a strong impact on Russia, Central Bank Chairman Sergei Ignatyev said at an international banking congress in St Petersburg .

"I don't think these events can have a negative impact on the Russian economy," he told the banking congress.

The large deficits in some European countries have undermined the markets' confidence in the ability of the governments of those countries to honor their public debt commitments, Ignatyev said. This has pushed the cost of sovereign debt up in those countries, eroding that confidence even more. "It's a viscous circle. The problem's more political than economic, and it is quite surmountable if the European states act promptly and a well-coordinated manner," he said.

The overall uncertainty, the possibility of fiscal policy in European countries being firmed up drastically and the potential consequences this will have for overall demand and economic growth - all this has brought shares, oil and other commodity prices down, Ignatyev said.

Russian banks, including the Central Bank, are far better prepared for external shocks than they were in 2008, and the CB is keeping the exchange rate under control, he said. The latter is much more flexible than it was pre-crisis, and exchange-rate policy is more in line with the volatility on the international currency and commodity markets, he said.

"The Central Bank has a much wider range of instruments to influence the situation than it had two years ago, and the government, Central Bank and commercial banks have acquired some expertise in acting in conditions of global economic crisis," he said.

Banking sector liquidity in Russia is sufficient and its foreign debt has decreased substantially since 2008. Also, Russia still has the world's third biggest gold and forex reserves.