On September 27, 2013, the Board of Directors of the Bank of Russia decided to change from 4.5% to 5.0% its 2014 inflation target stated in the draft Guidelines for the Single State Monetary Policy in 2014 and for 2015 and 2016, which will be submitted to the State Duma of the Federal Assembly of the Russian Federation, the Central Bank of Russia's External & PR Department informed.
The targets for 2015 and 2016 remain unchanged at 4.5% and 4.0%, respectively.
This decision is based on the revision of the main parameters of the Bank of Russia’s macroeconomic forecast. The revision took place due to the change in the parameters of indexation of the natural monopolies’ regulated prices and tariffs in Forecast of Social and Economic Development of the Russian Federation in 2014 and for 2015 and 2016 published by the Ministry of Economic Development of Russia on September 24, 2013, the statement points out.
The 2014 inflation target was set equal to 4.5% on the basis of macroeconomic forecast which had assumed that regulated prices and tariffs for all groups of customers, including households, would remain unchanged in 2014 compared with 2013. According to the revised forecast, regulated prices and tariffs for households in 2014 will be increased by the rate of previous year inflation times 0.7. This could add about 0.5 percentage points to inflation in 2014, the Bank of Russia informs.
Inflation target is defined in terms of growth rate of headline consumer price index. Therefore making monetary policy decisions the Bank of Russia takes into consideration all the factors that affect inflation. According to the Bank of Russia estimates, achieving inflation target equal to 4.5% in 2014 in the case of increase in tariffs for households would require tighter monetary policy in the short term than initially planned, that could weigh on economic growth. At the same time, if monetary policy stance remains as implied by the previous macroeconomic forecast, inflation would exceed the target. This could undermine the credibility of the Bank of Russia policy and decrease its effectiveness in the future.
In order to avoid both of the abovementioned outcomes and believing that the inflation target should be attainable under base-case forecast scenario without imposing excessive downside risks on economic growth, the Bank of Russia considers the target of 5.0% to be appropriate for 2014.The size of the target revision was determined taking into account the estimates of tariff indexation effect on inflation as well as the practice of setting inflation targets with the precision of 0.5 percentage points.
"AK&M", 27.09.2013 16:10