elvira nabiullina : recent russian economic developments and bank of russia ’ s forecast statement by ms elvira nabiullina, governor of the bank of russia, in follow - up of board of directors meeting, moscow, 13 march 2015. * * * good afternoon! today the bank of russia board of directors decided to reduce the key rate from 15. 00 % to 14 % per annum. this decision takes into account the following main factors. first, the latest data on the economic situation show that the balance of risks remains shifted towards the weakening of the economy rather than acceleration of inflation. january data and february leading indicators, primarily business sentiment indices, indicate that the economic situation continues to deteriorate and this trend may persist until 2016 q1. seasonally adjusted unemployment fell to 5. 0 %. it should be taken into consideration that the russian labour market traditionally adjusts, at least at the first stage, through wage rates and part - time employment, whose dynamics is indicative of lower demand for labour. at the same time, shrinkage of consumer demand will have a downward pressure on inflation. second, monthly inflation slowed down considerably in february following the surge in late december - january. and weekly march data indicate that this process continues. the current high level of annual price growth is explained by the supply - side factors – decline in the ruble exchange rate and imposed trade restrictions. these are one - time factors, and in case there are no new considerable shocks their impact on monthly and quarterly inflation will decrease over the next months. the annual inflation, which to a large extend reflects past price dynamics, can keep rising up to the middle of the year. however, in a year, i. e. in march 2016, inflation will slow down to the level of about 9 % amid the decrease in the monthly and quarterly price growth. while making the decisions regarding interest rates, we take into consideration not the current inflation that is essentially historical, and cannot be affected by our decision. we rely on inflation forecast. third, we forecast gradual decrease in inflation expectations. surveys already show evident signs of such a decline. in case no new shocks occur, this process will persist facilitated by the slowdown in current inflation. therefore, real interest rates which should be calculated with regard to the expected inflation will stay in the positive range providing for antiinflationary nature of monetary policy. nevertheless, it is persistently high inflation expectations, as well as risks of the upward revision of tariffs of

natural monopolies, fiscal policy easing, and possible accelerated growth of nominal wages that we consider to be the main risks for our policy and our inflation forecast. i would like to note that, when taking the today ’ s decision, the board of directors was guided by the goal to decrease inflation to 4 % in 2017 and to further maintain it close to this level as it was stated in the guidelines for the single state monetary policy. we have repeatedly expressed our intention to reach this level step by step taking into account the economic conditions. the rate of inflation decrease will depend on further developments and changes in the economic situation. the attempt to reduce the inflation at any cost would obviously be a short - sighted strategy. when taking a decision on the key rate we always consider the balance of risks of inflation acceleration and slowdown in economic growth. this balance changed considerably at the turn of 2014 – 2015. for most of 2014 the balance of risks was shifted towards inflation acceleration. economic slowdown was primarily of structural nature and did not have considerable impact on prices. meanwhile, inflation expectations were growing. bis central bankers ’ speeches the situation aggravated in 2014 q4, because the fall in oil prices and the need to make large external debt payments amid almost inaccessible international capital markets led to considerable ruble depreciation. this in its turn resulted in higher inflation expectations. demand of households and businesses for cash and non - cash foreign currency surged up. it threatened to heavily accelerate inflation and destabilise financial sector. it was important to bring these processes to a halt and we decided to raise the key rate dramatically to 17 % p. a. the rise of the key rate was followed by the increase in bank deposit rates that managed to stop the outflow of funds from ruble deposits and pegged down their dollarisation. our foreign currency repo and lending operations also helped normalise the situation in the foreign exchange market. in december - january, we reduced rates on these instruments, introduced new types of operations, and increased the frequency and allotment amount of foreign currency provision. in late 2014, the allotment amount of foreign exchange liquidity provision was about 20 billion us dollars and currently exceeds 30 billion us dollars. in january 2015, despite persistently low oil prices, complicated geopolitical situation, and russia ’ s downgraded sovereign rating, the exchange rate volatility decreased and inflation expectations showed the first signs of stabilisation. this means that the result we expected when raising the key