Bank of Russia Tells Doubters Inflation Trumps Ruble for Policy

The Bank of Russia brushed off criticism that it’s targeting a ruble exchange rate and said price stability remains its overriding policy goal.

“We are absolutely not planning on targeting the exchange rate,” Governor Elvira Nabiullina said in an interview with CNBC broadcast on Thursday. “We are making all of our decisions pertaining to interest rates to achieve our inflation goal.”

Nabiullina is facing down skepticism by economists that Russia is allowing the ruble to trade freely seven months after introducing a formal inflation targeting regime. As part of its program to rebuild reserves to $500 billion, the central bank has bought $4.4 billion since May 13, damping this year’s biggest major-currency rally by the ruble.

Policy makers said this week that inflation risks will constrain further interest-rate cuts after four decreases this year brought the benchmark to 11.5 percent. The Bank of Russia has rolled back most of December’s emergency rate increase as the economy succumbs to its first recession in six years.

The Russian currency has gained more than 14 percent this year against the dollar after losing about half of its value in 2014. It traded 0.6 percent stronger at 53.2810 to the U.S. currency as of 1:08 p.m. in Moscow.

The ruble’s three-month implied volatility, a measure of exchange-rate swings, is at 20 percent, the highest globally, according to data compiled by Bloomberg.

Attitude Change

“What’s key to us is our interest rate policy, the cost of money, the cost of rubles for the economy,” Nabiullina said. “We want to teach the market participants that our interest rate policy is much more important than the exchange rate. This kind of change in attitude toward our policy is currently taking place.”

The central bank’s medium-term inflation target is 4 percent, a goal it anticipates will be reached in 2017. Consumer-price growth decelerated for a second month in May, slowing to 15.8 percent from a year earlier, compared with 16.4 percent in April.

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