The goal justifies the price – Kommersant

The Central Bank published the results of almost two years of research as part of the review-revision of the monetary policy (MP) and announced public consultations on this issue – their results will be summed up in August 2023. The main conclusions of the researchers are that there are no grounds for alternative types of monetary policy and strong changes in it, the ideal inflation target is 1%, in the Russian Federation there are reasons to reduce the target to 3%, but not to 2% per annum, the problems of “zero rates” for There is no Russian Federation yet, and it would make sense to clarify the wording of the inflation target (but not its format).

Bank of Russia announced on the completion of the first, exploratory phase of the monetary policy review launched in 2021 (see “Kommersant” dated October 7, 2021). It was assumed that the “review” (review – in the original, English version, the term also means “revision”), which in the central banking practice consists of research and public discussion of the practices and goals of the Central Bank in its activities as a monetary regulator, will end in the second quarter of 2022 . Circumstances — first the protracted COVID-19 pandemic, then Russia’s military operation in Ukraine, the sanctions response of the G7 countries to it, which radically changed the terms of Russia’s foreign trade, and bilateral restrictions on capital movements — have shifted these dates. Now the Central Bank is launching the second stage of the review – public consultations: they will be held in the summer of 2023, including in the regional offices of the Bank of Russia with the participation of a professional (banks and financial companies, business) and non-professional audience. In August 2023, the results of the discussion will be consolidated and included in the draft “Guidelines for a single monetary policy”.

The research work of the Bank of Russia turned out to be essentially even more complete and diverse, but the main question for the beginning of 2021 is whether it makes sense for the Central Bank to revise the target in inflation targeting in the following years (presumably from the current 4% to 2%, as in most countries of the world) – has not lost its meaning, but has obviously “faded”.

Most of the works of Central Bank researchers (18 were mentioned in the report, only a part of them were previously published by the Bank of Russia in its series of scientific publications in the journal Money and Credit) does not, in fact, touch upon the issue of “target” as such. As expected in 2021, the studies of the Central Bank are divided into six blocks, and their content has not changed much. Two years ago, the Bank of Russia, apparently, did not expect such strong changes in the information space, therefore, studies on the communication of the Central Bank are not combined into a single analytical report – these are six separate works for 2021–2023. Questions about how the Central Bank’s inflation target should look like have been studied in great detail.

The question of whether the Bank of Russia should pursue an inflation targeting policy at all is not directly raised at future public discussions, the question of what “target” should be on the horizon of three years is the subject of consultations, but the Central Bank’s considerations of its economists and future discussions on the format of the goal: seven papers by economists of the Central Bank are devoted to various aspects of this problem. Note that the status of all academic texts published by the Central Bank is dual. As scientific works, they do not reflect the point of view of the regulator, but only their authors (employees of the Central Bank) as researchers. On the other hand, in the discussion the Bank of Russia relies on these works as a description of its own point of view on the issues raised, however, the format of the consultations suggests that the Central Bank can change its view of the problem. First of all, this concerns the format of the target: as Alexei Zabotkin, Deputy Chairman of the Bank of Russia, presented his advisory report on Thursday, the question of the level of the target for inflation is only part of a block of studies on how the target may look like in general.

On the one hand, the work of Anna Glazova from the Central Bank answers the question of what the “level” of the goal looks like – one, two, three, four, ten percent per annum – from the point of view of public welfare.

In her opinion, the optimum in this sense is 1% per annum, by 2021 there are opportunities to reduce the target to 3% per annum. The work of Andrey Meshcheryakov and colleagues, as well as the work of Glazova, demonstrates that the current level of inflation expectations does not prevent the reduction of the Central Bank’s goal, as well as the level of complexity of the economy and other factors, and the effective lower limit of interest rates (as well as zero rates) under the current policy of the Central Bank is unlikely whether will be achieved. Summing up the conclusions of the works, there are grounds for reducing the “target”, but not to 2%, as proposed, but to 3%, which, perhaps, does not make much sense in the coming years. As for the type of inflation target – a point (near 4%, about 4%, 4%), a range (3-4%, 2-6%), a point with a range (4% plus or minus 1%), then, According to Timur Magzhanov and Andrey Meshcheryakov, changing the current format — a dot — is irrational, although “formalization of a flexible criterion for inflation deviation from the target, including both the size and duration of the allowable deviation” may make sense.

Separately, it is worth noting the study by Magzhanov and Meshcheryakov of the width of the range of goals of central banks – such work has not been done before outside the Russian Federation. The conclusion is that “width” depends not only on the previous inflation volatility, but also on the participation in the choice of the government’s goal and on the transparency of the Central Bank’s operations. Practically important is the conclusion of the work of Zoya Kuzmina and colleagues, which analyzes the choice of an inflation indicator that is targeted by the Central Bank: the authors demonstrate that the best choice for this is not the consumer price index (CPI, used by the Bank of Russia now), but the core consumer price index (BICP).

Finally, in the works of Marina Melikhova and colleagues, Andrey Zmanovsky, Olga Yatsyk and colleagues, Alina Evstigneeva and colleagues, Mikhail Asriev and Dmitry Miroshnichenko, certain aspects of the question of whether it was worth it in the past (and whether it is worth it in the future) to apply other model of PrEP or significantly modify the current one in order to obtain a better result in the end. Thousands of blog posts, Telegram channels, media comments a year are devoted to answers to such questions, but their search is rarely approached with scientific criteria. The main conclusions of the work of economists of the Central Bank – as a rule, the steps of the regulator were close to optimal. Alina Evstigneeva in another paper discusses the communication of the Central Bank as an instrument of monetary policy. Here, in particular, estimates of requests to the Central Bank of the professional community are given, which the regulator does not systematically publish. This (in addition to uploading data via the API and the program code of the Central Bank models) is the decomposition of the deviation of inflation from the target (the Central Bank now publishes such data), estimates of the output gap and loss functions. Requests to abandon the policy of “single vote” in the Board of Directors of the Central Bank and to publish the minutes-minutes of its meetings are popular.

As a result, the Bank of Russia submitted 23 questions to the consultations based on the results of the research, almost none of them were formal ones.

So far, it can be assumed that the Central Bank is leaning towards a correction not of a formal type (dot), but of a meaningful description of the inflation target and, perhaps, will propose to postpone the issue of a new target for the period after 2025, when, perhaps, it will be possible to talk about its reduction in more detail .

The likelihood that, as a result of consultations, the Central Bank’s point of view on certain issues will change, now, apparently, is greater than in 2021 – the likelihood of a quick transition from a target of 4% to a target of 2%, duplicating the inflation targets of the Fed and the ECB, two years has clearly become lower. Note that the goals of banks and the Central Bank in answering the question “how best to do it” often diverge. The task of the Bank of Russia in the framework of targeting and the policy of the interest rate corridor is to make the market compete, the implicit task of the financial sector, all other things being equal, is to earn more confidently on the results of the actions of the Central Bank at a standard level of competition.

Dmitry Butrin