Will Russia Be Able to Stay in Central Bank Heaven?
Factors that have helped the Bank of Russia close in on its inflation target may prove temporary
Bank of Russia Governor Elvira Nabiullina has almost achieved what many other central bankers are still dreaming of: reaching her inflation target.
Of course Russia's policy makers, unlike the European Central Bank's, have been battling too-high inflation rather than price growth that is too low. She's faced plenty of hurdles beyond her control in closing in on her 4 percent goal, including a collapse in oil prices and international sanctions. There have also been tough choices in deciding to put the ruble into a free float, introducing inflation targeting and keeping a tight monetary stance in the face of public opposition.
Over just two years that has brought inflation down from a 13-year high of nearly 17 percent. Now the challenge will be to keep it there.
The main factor behind the high inflation Nabiullina faced was the ruble’s depreciation, according to Oleg Kouzmin, chief economist for Russia at Renaissance Capital in Moscow. It lost about half its value in 2014-15 and the waning effects of that slump is one of the major reasons prices are now under control, he said, alongside a contraction in demand, falling inflation expectations and a good harvest.