In fact, budget consolidation is an important structural reform that impacts the monetary policy. We need a budget rule to ensure sustainably low inflation and stable real ruble exchange rate amid wobbling oil prices and commodity cycles. In this respect we are absolutely at one with the Ministry of Finance. 4  BIS central bankers’ speeches  Although the dependence of the Russian economy and the exchange rate on oil prices has been down recently, it is still high. A budget rule (accumulation or spending of budget reserves when oil prices exceed or fall short of a certain benchmark, say, $ a barrel) would allow us to reduce the economy’s dependence on oil price fluctuations to a greater extent. Certainly, a medium-term budget balancing programme is very important to us. Uncertainty over budget expenditures, deficit and its future funding sources trigger considerable inflation risks. Importantly, the budget rule and the medium-term budget balancing programme would mitigate inflation risks and allow the Bank of Russia to pursue a looser monetary policy, all else being equal. Indexation of tariffs for utility and natural monopoly services below the inflation target of 4% would help mitigate fiscal and, consequently, inflation risks. Structural reforms designed to increase mobility of working population, vocational training and conversion courses are important for dragging inflation down and boosting efficiency in the economy. They will allow accelerating employees’ movements between companies of different industries, facilitating recruitment, reducing unemployment and shadow employment.

In its turn, that would drive economic growth and drag down inflationary pressure inflicted by wage growth. Thereby, there is a set of structural measures which are not only important for the economic growth, but also may have a positive impact on inflation and, consequently, rate reduction in the economy. I would like to dedicate the second part of my statement to development of banking regulation and supervision and announce some important changes the Bank of Russia intends to introduce shortly. Let me begin with banking system challenges, the global developments affecting the Russian financial system and requiring new solutions. All over the world, the banking sector is going through a serious transformation in the aftermath of the latest global crisis: regulation has been tightened; capital burden has increased, making banks in many countries unattractive for investments. Despite soft monetary policies in the leading economies, the banking system is wary of boosting lending. Disproportionate regulation made parallel banking, including asset management, more attractive. Thereby, banks transfer risks to other market participants, though it is not always clear. Moreover, if banks give up certain activities following the new regulation, it may result in a loss of liquidity, among other things, in such an important sector as bond market. As a result, possibilities of bond offering shrink and the market becomes more volatile and exposed to shocks. Another challenge for the banking sector is a rapid fintech evolution that transforms relations between customers and financial institutions. New players (e.g., retailers) launch financial products and services.