Central Bank still considers unconventional monetary policy methods to be 'counter-indicative' for Russia

MOSCOW. Sept 28 (Interfax) - The Central Bank of Russia (CBR) is still committed to a conservative policy of inflation targeting and believes unconventional monetary policy instruments are counter-indicative for Russia in the current circumstances, CBR deputy governor Alexei Zabotkin said the Treasury international banking forum.

He was responding to a question from the moderator about whether the CBR planned to move away from the classic policy of inflation targeting through the overnight rate, and target longer rates through long-term OFZ federal bonds or swaps.

"We still have a very categorical and orthodox view. We believe that any unconventional instruments of monetary policy in the current Russian conditions are not advisable. What you are talking about, essentially, with some variations and semantic details and shades, is a policy of targeting the yield curve, which quite a few central banks have practiced in the past couple of years, expressly or not, and there have been other cases in history when this was used," Zabotkin said.

He said the world is now seeing a big inflation surge that is the consequence of the application of these instruments.

"Because we all understand that if a central bank starts replacing the market with itself in terms of pricing long-term financial instruments, where, besides current conditions, a whole range of market opinions are factored in about how the situation might develop in future, then it is essentially trying to say that it knows more about the future than the market and it responds to changes. And subsequently it can be kind of difficult for the central bank to promptly respond to changes in the situation, and it can change very quickly. And, actually, some of the lags in exiting the policy that central banks pursued in recent years are related to this," Zabotkin said.

A policy of control over the yield curve as an instrument is advisable if there is no more room for easing monetary policy by standard means, meaning when the short rate is already at zero or at the effective low boundary, he said.

"We have quite substantial room for using the key rate and we have never bumped up against the lower boundary. In this sense we have no need to carry out additional easing through some operations on the far end," Zabotkin said.