Russia s move in exchange rate policy and other monetary policy options

Transcription

1 Russia s move in exchange rate policy and other monetary policy options Riikka Nuutilainen, Bank of Finland Institute for Economies in Transition (BOFIT) 77 th East Jour Fixe of the Oesterreichische Nationalbank 1

2 Outline Monetary policy in Russia Recent developments Estimation results for policy reactions Move towards inflation targeting Is full inflation targeting a credible monetary policy option for Russia? 2

3 Monetary policy framework in Russia Capital controls imposed after the 1998 crisis were largely liberalised in 2004, and completely free capital movements from 2006 onwards Long transition towards inflation targeting (IT), formally adopted in 2007, the CBR sets target range for inflation Still, much weight based on at least partial stabilization of exchange rate (as evidenced by growing foreign reserves), but exchange rate flexibility increased over time Explicit exchange rate target/corridor given up late 2014 Rouble support purchases possible in extreme situations CBR standardly provides banks with forex repo credits to satisfy foreign currency demand 3

4 Exchange rate and forex interventions Value of one rouble in cents 4,4 4,0 3,6 3,2 2,8 2,4 2,0 1,6 1,2 0,8 EUR billion per day -1 Rouble-dollar (left) Rouble-euro (left) I CBR net forex sales (right), available after January 2011 CBR day forex repo issues (right) Source: CBR

5 Inflation and annual targets Inflation (consumer prices) CBR target range Sources: IMF, CBR, Rosstat 5

6 Monetary policy rules for Russia CB s monetary policies may be described by one or another version of a simple rule (such as Taylor s 1993) Monetary policy rules are utilized to examine how the CBR has reacted to the macroeconomic developments Assessment of the change in CBR s policy by estimating the policy reactions over time Monthly data from January 2002 to February 2015 Policy interest rate is the CBR refinancing rate until 01/2011 and the CBR policy rate after 02/2011 Real growth in monetary base used as an alternative policy instrument A six-year window (72 obs.) that is moved one observation forward at each step 6

7 Taylor interest rate rule r t = α 1 π t 1 π t 1 + α 2 y t 1 y t 1 +α 3 rrrr t 1 + α 4 ooo t 1 +α 0 +α 5 r t 1 r t = policy interest rate π t = CPI inflation (yoy) π t = Inflation target for the year y t = Real GDP growth (yoy) y t = HP-filtered trend in GDP growth ooo t = change in oil prices rrrr t = change in real effective exchange rate 7

8 .3.2 Rolling parameter estimate 90% confidence bounds Inflation deviation IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I Rolling parameter estimate 90% confidence bounds Output gap -.2 IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I Rolling parameter estimate 90% confidence bounds REER change IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I Rolling parameter estimate 90% confidence bounds Oil price change IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I 8

9 Taylor rule for monetary base bb t = α 1 π t 1 π t 1 + α 2 y t 1 y t 1 +α 3 rrrr t 1 + α 4 ooo t 1 +α 0 +α 5 bb t 1 bb t = real growth in monetary base (yoy) π t = CPI inflation (yoy) π t = Inflation target for the year y t = Real GDP growth (yoy) y t = HP-filtered trend in GDP growth ooo t = change in oil prices rrrr t = change in real effective exchange rate 9

10 1 Inflation deviation Rolling parameter estimate 90% confidence bounds IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I 2 1 Output gap Rolling parameter estimate 90% confidence bounds 0-1 IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I 1.0 REER change Rolling parameter estimate 90% confidence bounds IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I.1 Oil price change Rolling parameter estimate 90% confidence bounds IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I 10

11 Change in monetary policy conduction Policy aimed to price stability after late 2008 Strong emphasis also on output stabilisation in interest rate policy In recent months after the rouble crisis, however, the CBR has been forced to move away from inflation stabilisation and focus more strongly on output Interest rate policy was also used to react to the plunge in exchange rates in late 2014 Prior to that, the exchange rate was controlled at least partially by the CBR 11

12 Inflation targeting prerequisites A growing number of countries (incl. emerging and transition) are adopting some type of IT regime IT main elements (e.g. Mishkin 2000; Jonas & Mishkin 2005; Mishkin & Schmidt-Hebbel 2002; Schaechter, Stone & Zelmer 2000) exchange rate flexibility commitment to price stability as the main CB policy goal independent CB that is accountable to the public transparent monetary policy functioning policy transmission reliable statistics for making credible forecasts fiscal discipline and sound financial system Usually a period of soft targets (and lower inflation) before transitioning to full-fledged IT 12

13 Inflation targeting in Russia First time in 2007 CBR monetary policy guidelines price stability was set as the main policy objective Transition towards inflation targeting and a more flexible exchange rate since the crisis in Monetary policy free to be directed to domestic considerations The CBR has a medium-term inflation goal of 4%, but it has been pushed constantly further into the future Also shorter term inflation targets often missed by a wide margin 13

14 Outlook for Russia s monetary policy The transition towards inflation targeting is underway, but (temporarily) put off by the currency crisis and economic uncertainties In short term, priority to a swift monetary policy normalisation One-off impacts of rouble depreciation and countersanctions on prices will die out Economic slowdown and rouble appreciation in recent months add to the lower inflation pressures Over a longer term, the CBR needs to build credibility under the inflation targeting regime 14

15 Thank you. 15

16 Data used in policy rule estimations Policy interest rate CBR policy rate CBR ref inancing rate Policy interest rate Real grow th in monetary base Inflation deviation CPI inf lation less the annual target CPI inf lation less the HP-f iltered trend Output gap Real GDP growth less the HP-f iltered trend Real GDP growth Change in real effective exchange rate (REER) Change in oil price Note: For comparison, the dash line show the corresponding inflation gap estimate, obtained by using Hodrick-Prescott filtering. All data is in percentages. All growth rates from same month previous year. 16