The head of Russia’s central bank applauded the U.S. Federal Reserve’s moves toward higher, more historically “normal” interest rates, and called on other central banks to follow suit.
At the same time, Elvira Nabiullina, governor of the Central Bank of Russia, underscored on Thursday that Russia will continue to ease its own rates. Russian interest rates remain stubbornly high at 9 percent.
“Of course I welcome all the normalization of monetary policy. I think monetary policy should be normal. We try to normalize our policy but it’s the opposite direction — we are now in an easing cycle — but other countries are in a different way,” Nabiullina told CNBC.
Fed Chair Janet Yellen said Wednesday in the first of a two-day address to Congress that interest rates in the U.S. are nearing “neutral” and any further policy tightening would be gradual.
Russia’s economy has been hurt by the persistently low oil prices, sanctions imposed by Brussels and Washington, and inflation of 4.4 percent, which remains stubbornly elevated though it has come down from peaks of 17 percent two years ago.
Russia saw an inflation spike in June, largely from food prices, but Nabiullina said Russia’s central bank is assessing whether this is will be a prolonged theme.
Nabiullina said that when inflation gets to Russia’s target of 4 percent, the central bank can start to move toward its “neutral” interest rate target of between 2.5 percent and 3 percent.
Russia’s Central Bank continues to hold a “conservative” baseline scenario for oil prices at $40 a barrel because of what Nabiullina described as a number of “absolutely unclear” factors.
Contributing to that lack of clarity is markets’ muted reaction to the extension of an OPEC deal aimed at reducing excess oil supplies — and thereby, it was hoped, boosting prices. The cuts failed to cut into the cost of oil as much as was expected.
“We observed that the reaction of oil markets to this prolongation of the OPEC agreement is a bit different to what markets expected, and the oil price is a bit lower than many expected as a result of this OPEC agreement,” Nabiullina said.
“We see many medium-term factors that are absolutely unclear about oil markets. That’s why we think we should be conservative in our forecast of oil markets. We think these factors are so changeable that oil markets could stay quite volatile.”
Russian central banker praises 'normal' interest rates — and gives her outlook for oil prices