Central Bank Chief unveils two external sources of volatility for Russian economy

Russia’s Central Bank Chief Elvira Nabiullina considers oil prices fluctuations and changes of capital flows to the markets the main sources of volatility for the country’s economy.

"New risks are constantly emerging, and one should keep abreast all the time. As of now, I would point out two important risks, two sources of volatility. First, fluctuations of commodity prices," she said, adding that for Russia the most important commodities are oil and gas.

"Changes of capital flows to the markets, first of all connected with normalized monetary policy in developed countries, as well as geopolitical factors and international trade limitations, the number of which has risen sharply recently," is considered the second external source of volatility, Nabiullina said.

The floating rate makes it possible for economies to adjust to those shocks, she noted. In case of sharp price fluctuations one may face a strong volatility of the exchange rate, inflation, and thus interest rates. "In those cases the efforts of only central banks are insufficient, the government’s measures are needed, such as fiscal rules or alternatives, which create buffers from external shocks, stabilize budget expenditures and as a consequence the economy and the exchange rate," the regulator’s head explained.

She added that in case of shocks connected with capital flows additional instruments for maintaining financial stability are necessary, particularly suspension of currency transactions within the rule.

"Russia has a whole range of such instruments, among them automatically inclusive exchange swaps, auction instruments of providing foreign exchange financing to our banks, temporary regulative exemptions for banks. All this provides time and required resources for the financial system to adjust. By the way, after the new fiscal rule was introduced, the suspension of foreign exchange operations within the rule became such an instrument in Russia," she added.