Alexei Ulyukayev, first deputy chairman of the Russian central bank comments on inflation, interest rates, central bank intervention and the ruble.
He was spoke in an interview today in London.
“Supply shocks are dependent on food prices, mostly domestic but also global food prices. So I don’t think the central bank would react to that with interest rates or other instruments.
“The other is demand-side shock influenced by the increase of some monetary indexes. That is the responsibility of the monetary actions of the central bank.
Because the bank is seeing “some growth in this factor, we are now thinking about all possible reactions. Reaction could be on three lines: first the policy rate, second the reserve requirements and third the exchange-rate performance. We’ll be watching the situation and make our decision accordingly.”
On interest rates:
“We changed our language. This means that we now feel this monetary side influencing inflation. We are not sure if this is too much or too high. This means that we free ourselves to change policy in case it’s necessary. But now we do not have any practical solution to that.
“I’m not going to say if it’s likely or not likely, generally I can say that we’re still thinking about it.”
On whether he’s concerned about intervention draining ruble liquidity:
“Not really, because our banks collected too much reserves of liquidity in deposits at the central bank and our short-term bonds.” Three month ago that figure “was about 2 trillion rubles. After that, we sterilized say about 400 billion rubles in the market by selling currency to the banks.
“The amount of free liquidity, of course, decreased but it’s still a big figure. Now I’m not very much concerned, but if the situation will continue to be like that we will get more concerned.”
On interventions and the timeframe to reduce them:
“We will not take any radical steps in this direction; we’ll move step by step. Even now, the result is not bad. Before it was $10-15 billion and now it’s a one-digit figure, about $4-5 billion. It’s more or less acceptable now. In the future, this amount will be going down, but I cannot say any precise figures about that.”
On capital outflows:
“This is mostly the situation with our loans, credits, because when it comes to the stock market figures, the Russian performance is not bad, better than in China, Brazil. In the fourth quarter of this year a lot of companies have to fulfill the obligations to their creditors, and for that reason they accumulate assets in foreign currencies. This is the main reason for the capital outflow.”
On the ruble exchange rate:
“We will continue to move to more flexibility of the exchange rate with steps like widening the operational corridor and the second is to change the amount of currency which we buy and sell when we move the boundaries of this corridor. I think these will mostly remain our tools.”
He declined to comment on what levels the central bank would widen the currency’s trading limits.
On yuan trading on Russian exchanges:
“It will be on the exchange, the Micex, the same procedures like the other currencies. The same procedures like for the dollar and the euro.”