VTB proposed three measures to make the Central Bank’s rate decisions more predictable
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According to him, the Bank of Russia is one of the most unpredictable regulators in the world in terms of decisions on the key rate. At the same time, Pyanov notes, there is no talk of unprofessionalism of Central Bank employees. He explained that the reason lies in “very volatile and unpredictable inflation.”
As a first measure to help make the Central Bank’s rate decisions more predictable, Deputy Chairman VTB proposed extending the deadline for returning to the target inflation of 4%. According to Pyanov, with such a strict position on the target, the Central Bank should not “drive itself into difficult or impossible time frames” for achieving it. As an example, he cited the Armenian regulator, which has a public deadline for achieving the inflation target of three years.
The second option is to take into account not only demand factors, but also supply factors when making a decision on the rate. Pyanov recalled that in mid-2023 the main argument in favor of raising the rate was not the overheating of the labor market, which was noticeable already at the end of 2022, but the strengthening of domestic demand.
The third possible measure is to improve the composition of the basket of goods and services, which is used to calculate the consumer price index, writes the deputy chairman VTB. In his opinion, the calculation should take into account “goods or services that stabilize inflation,” such as imputed housing rent.
The previous time, the Board of Directors of the Bank of Russia raised the key rate by 2 percentage points to 15% on October 27. The next meeting is scheduled for December 15, 2023. The Central Bank previously admitted further increase in rate.
Before this, the regulator increased it three times. In July, the Central Bank raised the rate from 7.5% to 8.5%, and then in August raised it immediately to 12%. In September, it was decided to increase the rate by 1 percentage point to 13%.
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