Alexey Zabotkin: Plan of analytical work and events for the Bank of
Russia's Monetary Policy Review
Speech by Mr Alexey Zabotkin, Deputy Governor of the Bank of Russia, on releasing a plan of
analytical work and events for the Bank of Russia's Monetary Policy Review, Moscow, 6 October
2021.
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Good afternoon,
As Bank of Russia Governor Elvira Nabiullina announced making a speech at the International
Financial Congress at the end of June, the Bank of Russia plans to carry out a comprehensive
analysis of the Bank of Russia's monetary policy, its objectives and instruments - the Monetary
Policy Review - over the period of inflation targeting in Russia. Today, we have launched
a special web page covering the plan of analytical work and key events within this Review.
I will provide a brief summary of this announcement and then answer additional questions.
Why is this important and why are we doing this right now?
First. The Bank of Russia switched to the inflation targeting regime in 2015. Annual inflation
decreased to 4% in 2017. It has been seven years since we started to implement this policy
and nearly five years since inflation reached the target. This is a sufficient period for us to be able
to make conclusions about our achievements. The Review is intended to assess
the effectiveness of the monetary policy implemented and take a look at past events. It is meant
to analyse the decisions made over this period, which was rather challenging to be honest,
and to assess their influence on the economy and price stability.
The conditions of monetary policy implementation change over time. We are going
Second.
to scrutinise whether the effective parameters of our monetary policy we are adhering
to now are coherent with these developments and to what extent. Possibly, it would
be reasonable to consider certain adjustments that would enhance the effectiveness of our policy
in the future, taking into account, among other things, structural shifts in the Russian and global
economies which might occur in the future.
The third aspect is no less important than the first two. Price stability, which is the goal
of monetary policy, is beneficial to the entire society. However, there are significant differences
in how people, businesses, financial market participants, analysts and experts perceive price
stability as such and the role of monetary policy in ensuring price stability. Annual inflation
has averaged 4% over the period since January 2017 until now. Nonetheless, its rate has been
fluctuating from 2.2% to 7.3% and currently stays at a high level. Within this Review, we will
be able to carry out an extensive discussion of how the society perceives the policy pursued
and its results. In the course of the Review, representatives of the Bank of Russia will hold
meetings with business associations, representatives of small, medium-sized and large
enterprises, government authorities, the academic and expert community, including professional
financial market participants, and citizens from various social and demographic groups. Some
of these meetings will take place at the Bank of Russia's regional branches.
Such analysis is conducted by many central banks, in the first place by those having a long
experience of inflation targeting. Some central banks carry out such reviews on a regular basis
(Canada, Sweden, Norway). The US Fed accomplished its review not so long ago.
The ECB completed a similar project in July 2021. As to the Bank of Russia, this is our first
experience of such a profound and comprehensive analysis of the achievements of our monetary
policy, but we will definitely continue this practice. In the future, the Bank of Russia plans to make
such reviews regularly, every five years.
The range of topics to be reviewed by our analytical units includes six work streams.
Work stream 1. Inflation target format. This topic is obviously drawing the greatest attention.
Within this work stream, we will consider once again what format of the target would ensure
the highest confidence in it and what inflation rate could be the best measure of price stability.
Furthermore, we will analyse whether the Russian economy has formed the conditions
for reducing the inflation target.
Work stream 2. The operational procedure of monetary policy. The main issue of this block
is how effectively the monetary policy pursued achieves its operational objective, which is to keep
money market rates close to the key rate. We will also consider whether we need to adjust
our operational procedure given the evolution of the Russian financial market.
Work stream 3. Retrospective assessment of the effectiveness of the monetary policy
This block of topics is probably the most challenging one technically. Within this work
pursued.
stream, we will try to estimate, relying on our model-based approaches, what results we could
have achieved through our monetary policy if we had known what we know now when making
our earlier decisions. I would like to stress straight away that we will not assess our actual
decisions as they were made when we had less information than today. Nevertheless, this
is a very useful practice to analyse the robustness of the monetary policy pursued, which will
provide helpful insights for the future.
Work stream 4. Communication as a monetary policy instrument. I may say straight away
that we have been consistently developing our communication practice throughout the entire
period of inflation targeting and continue to improve it now. We are to assess how well
the society understands our communication, how predictable our actions are, and what areas
of our communication we should prioritise in the future in order to strengthen confidence
in the policy pursued.
Work stream 5. Monetary policy and financial stability. The key topic within this block
is the interaction and mutual influence of these two components of the Bank of Russia's
set of tools used to address the task of maintaining price stability and financial stability.
Finally, work stream 6. New challenges to monetary policy. Within this block, we will analyse
such long-term trends in economic development and finance as the introduction of digital
currencies, innovations in the financial market, and climate and demographic changes. We will
also estimate how these issues might impact the implementation of central banks' monetary
policies in the future.
We have already started our analysis within all these work streams. The results of the Review
will be discussed until the end of 2022 Q1. Following the discussion, we will compile a summary
report in 2022 Q2 and publish it on the Bank of Russia website together with analytical notes
addressing individual issues. The summary report will present the Bank of Russia's opinion
on the topics reviewed and proposals regarding a possible adjustment of the parameters
of the Bank of Russia's monetary policy.
The report will then be discussed with the public and the professional community. We are going
to sum up the results by the middle of 2022.
It would be possible to conclude whether we need to adjust our policy following the Review only
after we complete the analysis and the extensive discussion of its findings. Before we make
any decisions in this regard, we will continue implementing monetary policy in line with
our current goals and approaches covered in the draft Monetary Policy Guidelines for 2022-2024.
The results of the Review will be taken into account when preparing the Monetary Policy
Guidelines for 2023-2025.