MOSCOW: The head of the Russian central bank expressed concern on Thursday (Friday in Manila) about the volatility of the ruble, which has been shaken by fluctuations in the price of oil, and said a rate hike may be needed to counteract inflation risks.
“Right now, there is elevated volatility. This worries us,” Elvira Nabiullina said at a meeting with commercial bankers, cited by Russian news agencies.
“It worries us because for banks, this is uncertainty about the movement of one of the parameters based on which they make decisions.”
Russian budget revenues are highly dependent on the price of hydrocarbons it exports, and the fall of oil prices has seriously affected the ruble, which last month hit a historic low against the dollar.
After stabilizing for several days last week, the Russian currency has been sliding again this week, on Thursday reaching 80.64 against the US dollar and 91.48 against the euro for the first time since January.
Nabiullina said the ruble’s recent slump has forced the bank to halt a gradual decrease of the base rate which was changed four times last year from a high of 17 percent to the current 11 percent.
“Because of this inflationary pressure and elevated volatility on financial markets, we stopped our cycle of softening our monetary policy,” she said.
“If inflation risks grow stronger, if the negative scenario unfolds, we don’t rule out a toughening [of monetary policy],” she said, referring to a rate increase.
She added that the central bank believes it is likely that oil prices will stay “rather low for a long period of time,” contributing to inflation.
The best way to tackle the problem is diversifying the economy, she said.
“This is a longer term and more difficult problem that is not so much to do with monetary and budget policy as with structural policy,” she said.
The current oil slump has pushed Russia’s economy, already struggling due to Western sanctions over Ukraine, into recession, and the government is currently struggling to cut the budget ahead of parliamentary elections this fall.