• Reaching 4% inflation goal in 2017 `realistic,' governor says
  • Central bank has kept rates on hold since July amid recession

Governor Elvira Nabiullina said a stable and improving inflation outlook will enable the Bank of Russia to embark on steeper monetary easing without putting financial stability at risk.

Keeping interest rates on hold for a prolonged period is winning trust that inflation will continue to ease, Nabiullina said at a banking congress in Moscow on Thursday. Even so, she cautioned that one-time factors were largely responsible for a recent slowdown in price growth, meaning a continued deceleration isn’t guaranteed.

“If there’s a steady decline in inflation and inflation expectations, the Bank of Russia will be able to cut the key rate more actively in the future without creating risks for financial stability,” Nabiullina said. “Reaching the 4 percent inflation target in 2017 isn’t just absolutely realistic, but is simply essential.”

By promising to reward banks with steeper easing later, Nabiullina is looking to allay pressure for policy makers to end their rate pause and aid the recession-hit economy after inflation decelerated to the slowest pace in almost two years. The Bank of Russia has kept its benchmark unchanged at 11 percent since July, with economists predicting cumulative cuts of 3 percentage points over the next year, according to the median in a Bloomberg survey.

Above Target

Plunging oil prices and the ruble’s collapse earlier this year have rekindled inflationary risks in the world’s largest energy exporter. Annual inflation, while slowing more than forecast in March to 7.3 percent, is still well above the central bank’s target.

The Bank of Russia has conceded that price growth may “deviate” from its goal in late 2017 after turmoil in commodities and currency markets. Nabiullina said on Thursday that risks emanating from fiscal policy are of particular concern for the central bank.

The ruble has rallied in recent weeks as crude prices rebounded. It’s gained more than 8 percent against the dollar this year, the third-best performer among 24 emerging-market currencies tracked by Bloomberg.

“In the current conditions of structural changes in the Russian economy, the central bank’s monetary policy is primarily aimed at curtailing inflation,” Nabiullina said. “Clearly, we adopted measures to lower inflation while taking into account their impact on economic growth and financial stability.”

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