Alexei Devyatov Speaks at a RIA Novosti Conference

On 21 October, Alexei Devyatov, Chief Economist at URALSIB Capital, spoke at an international conference organized by Russian News & Information Agency RIA Novosti: “The Russian Money Market 2010. Regional Ambitions.”

Mr. Devyatov’s presentation was devoted to a very topical issue: “The Central Bank of Russia’s Exchange Rate Philosophy and Transition to Inflation Targeting”. In his presentation Alexei reviewed the Central Bank’s current exchange rate policy, aimed at managing the ruble’s floating rate. Devyatov expressed his doubts on the efficacy of such an approach, and believes that in the long-term the real ruble exchange rate is predetermined by purchasing-power parity (PPP), adjusted for market fundamentals (trade barriers, transportation costs, performance, etc.), which are beyond the Central Bank’s control. He argued that the real ruble exchange rate, therefore, does not depend on the Central Bank, as the latter can only influence it in the short-term.

Devyatov proposed that the ruble should be left to its own devices and attention should instead be focused on inflation, in particular, on switching to inflation targeting. He pointed out that the fastest growth rates are typically seen in countries with an inflation rate of 10-20% per annum. Devyatov estimates the optimum inflation rate for Russia is 5-6% per annum. Alexei said that the key priority for Russian monetary policy in 2011-13 is to lower the inflation rate and keep it at 6-7% per annum. Moreover, he believes that the Central Bank is perfectly equipped to achieve this; now, it all depends on the government’s political will.

October 25, 2010