Russia’s central bank, CBR published a draft of its annual monetary policy guidelines, covering the period of 2020-2022. There are no surprises in the document, but it provides more detail on some of the issues related to monetary policy. The document is part of the budget package and it will be submitted to parliament, although unlike the budget it is not subject to formal approval by parliament. The document also has a description of three economic scenarios, including a baseline scenario, an optimistic scenario and a risk scenario. Until now these scenarios were also discussed in the quarterly inflation report, but last week the CBR announce that it will concentrate only on the baseline scenario and the other two will be included only in the monetary policy guidelines. Our key takeaways from the report:
- Equilibrium real interest rate — the document confirms the current 2-3% range, but notes that the rate is very difficult to estimate precisely and may change. Available research puts it at 1-3% for Russia, according to the report, which seems to support speculations that the CBR may reduce the estimate allowing bigger monetary policy easing
- Exchange rate passthrough — Weakening of the effective nominal rate by 1% leads to 0.1pp increase of inflation over a six-month period. The effect is significantly smaller in the other direction when the currency appreciates.
- Investing money from NWF — investing money from the National Wealth Fund in Russia would reduce the stabilization effect of the fiscal rule and will require larger policy rate shifts in order to keep inflation near the target.
- Financial stability— The CBR favors separation of the goals of price stability and financial stability. The key rate is used exclusively for attaining price stability, while financial stability is ensured through macroprudential and supervisory measures.
- Transparency of monetary policy — The CBR defends the current system and pledges to continue work on increasing transparency, but there are no specific plans like disclosing vote results.