20 Jun 2022 16:39

Targeting ruble exchange rate would cause decrease in efficiency, loss of sovereignty in monetary policy - deputy Central Bank governor

MOSCOW. June 20 (Interfax) - The Central Bank of Russia (CBR) has thrown its weight behind the principles of inflation targeting, and transitioning from this to managing the ruble exchange rate would cause a decrease in the efficiency and loss of sovereignty in the pursued economic policy, Central Bank Deputy Governor Alexei Zabotkin said at a meeting of the State Duma committee on budget and taxes.

"Any ideas related to exchange rate targeting, if implemented, would inevitably lead to a decrease in the efficiency and loss of sovereignty in the economic policy being pursued," Zabotkin said.

"Inflation targeting is the best way to ensure predictable and low inflation over the medium term, which is necessary to maintain the purchasing power of households, as well as to maintain the predictability of business conditions and its profitability, because when inflation is high, it also fluctuates greatly, and individual prices fluctuate greatly, which reduces the predictability of profitability. This is the only way to ensure the availability of long-term loans in the economy," Zabotkin stressed.

Zabotkin noted that a fixed ruble exchange rate, or a rate set at some predetermined range, means that, "We are, in fact, refusing to conduct independent monetary policy in favor of the country to whose currency we fix our rate ".

The approach is also dangerous by fixing inflation at high rates. Inflation was previously low in the countries and issuers of the reserve currencies of the dollar and the euro. "This is not currently the case. If we were to pursue our monetary policy by setting its parameters so that our currency had some fixed or slightly fluctuating nominal rate against currencies where inflation is 8%-10%, then we would have the same inflation. This is exactly the option that is unacceptable for us," Zabotkin said, noting that this is just an illustration of the idea that targeting the exchange rate is actually rejecting an independent monetary policy.

"It seems to me that everyone who proposes these ideas should take this into account," Zabotkin said.