The head of the Central Bank told about the risks of trying to artificially control the exchange rate of the ruble

ANOSINO (Moscow region), 2 Jun — RIA Novosti. The head of the Bank of Russia Elvira Nabiullina said that now the policy of managing ruble is untenable because it can lead to the inflationary spiral and the dollarization of the economy.

She noted that she often hears the suggestion that Central Bank intervened in the foreign exchange market.

“Now often hear suggestions that the Central Bank let the exchange rate float freely, but if the ruble will begin to strengthen, the price of oil starts to rise, it is necessary that the Central Bank has avoided the strengthening of the ruble, because a weak ruble is favorable for our economy, and the need to maintain a weak exchange rate to support our exporters to help the budget and so on… a year and a Half ago we have heard that you need to keep the rate from falling, because the devaluation is bad. Moods change,” said Nabiullina, speaking at a seminar of deputies of “United Russia”.

“We believe the Central Bank management policy course untenable. It is impossible in present circumstances to control the rate of either the one or the other way. We are convinced that the exchange rate should remain floating, ” she said.

Nabiullina said that even if the Central Bank and will be released on the market, it can only affect the nominal exchange rate and not for real. She noted that the real exchange rate affects the fiscal rule, which allows less to weaken the exchange rate falls when the price of oil in real terms and Vice versa.

“The real exchange rate is the rate that corrected for inflation. A business is just important real exchange rate. What matters is how the prices of goods produced by our business is related to the price of goods produced abroad. And this reflects just the real exchange rate. Budget is also important, the real purchasing power of income, not nominal,” — said Nabiullina.

“On the real exchange rate of the Central Bank to influence almost can’t. We can affect the nominal exchange rate, when we carry out the intervention. If we carry out the intervention, it is a very quick impact on inflation. Implementing interventions, buying dollars, we emitiram rubles extra, and this affects inflation. In the result, the real exchange rate fairly quickly returns to the original values,” she said.

“If the Central Bank will persevere, and attempt to influence the nominal exchange rate, this will be an additional surge in inflation. And so spins the inflationary spiral. This can not happen”, — said Nabiullina.

Second, as noted by the head of the Central Bank, the market price balances the interests of different enterprises, which may be advantageous to a weak ruble, and those who, by contrast, wants the strengthening of the ruble. “Why, we believe, wrong to affect the exchange rate? The balancing of interests takes place only on the basis of market rate,” she said.

According to the survey, who conducted the CBA, it is clear that, despite different interests, all entrepreneurs want to see a stable exchange rate. “What’s all the interest is in a more stable course, with Paul not to go up and down, up and down. The fact that we have followed a policy of targeting through interest rates indirectly impact on the exchange rate, this led to the fact that the exchange rate we have less ranges than oil prices, although the economy continues to depend on oil prices”, — she added.

“But a stable exchange rate, stable real rate we get only when we will have a more diversified economy, when we cannot depend on exports of a narrow group of products that affect the flow of currency into the country. To this we must go,” she said.

While the rate is unstable, changeable, enterprises can make use of hedging instruments of currency risks, said Nabiullina. “They (instruments — ed.) starts to develop, before they need it was not, the rate was controlled by Central Bank”, — she said.

Another argument against the management of the course — the risk of dollarization of the economy. “Another argument why not to run the course, for example, to avoid its consolidation. As soon as the citizens and business will realize that the Central Bank allows the exchange rate to strengthen, that the rate can only move in one direction only to weaken as you think, what people will keep their savings? Naturally, they will keep the dollar… This is the path to dollarization of the Russian economy”, — said the head of the Central Bank.