The head of the Bank of Russia Elvira Nabiullina explained the necessity of the establishment of inflation in Russia not less than 4%. According to her, the decrease of this level could lead to deflation, which is harmful to the emerging Russian economy, because it reduces incentives for investment.

In an interview with Forbes that is available in the printed version of the publication, Nabiullina said that even in the case of reduction of inflation to the target level of 4% Russia will still be one of the countries with very high inflation. It will take only 126 place among 189 countries in this indicator, quoted by RIA “Novosti” the head of the Central Bank.

The decrease in inflation to 2%, as in most developed countries, according to Nabiullina, could create difficulties for the emerging economy of Russia. “Many emerging economies, which include Russia, put the guidelines above – 3-4%, sometimes 5%. In countries where markets are formed, is undergoing major structural change: some sectors grow faster, others slower. If the overall price index is 2%, in some sectors, prices still are rising faster, and others may even experience deflation (increase in value of the currency at lower prices. – Approx. Massive deflation is harmful: it reduces the incentives for investment, and in order to avoid a wide range of sectors, the inflation rate should be around 4%,” – said the head of the Bank of Russia.

According to Nabiullina, with inflation above 4% per year of investment “will not” quotes RBC. Because currently the main task of the Central Bank is to ensure stable and low inflation and, as a result, consistently low interest rates.

Both of these factors, according to Nabiullina, is more important than stable exchange rate, the fixation of which in conditions of high variability of foreign economic conditions can be devastating. “The huge advantage of stable and low inflation is that it provides a stable and low interest rates for business and companies can make plans. The level of loan rates for many businesses is much more important than the exchange rate. We still do not understand”, – said the head of the Bank of Russia.

Head of the Central Bank said that the ruble will directly affect importers, exporters and those who have debts in foreign currency. The interest rate and inflation are important for all without exception. “Basically, we have ruble transactions, it is very important that the ruble is not depreciated. Inflation is 4% – a level that allows not to think too much about the depreciation of ruble assets and provides sufficient stability”, – said the head of the Bank of Russia.

Nabiullina also noted that low inflation will put the domestic business in a completely new environment. “We’re not used to it, because we have had low inflation, she always remained strong and it was always a risk factor,” – said the head of the Central Bank.

In October, speaking at the forum “Russia calling!” Nabiullina called the inflation rate of 4% and below “investment” and stated that to reduce the rate of the Central Bank until inflation is 6-7%, it’s still early. “You know, 6-7% was more or less normal inflation, when economic growth was based on ever-increasing oil prices. Now we need a different economic model, and this model should be the investment,” – said the head of the Central Bank.

Approved by the government, the Bank of Russia monetary policy of the regulator involves the reduction of inflation to 4% in 2017 and to retain its close to this level in the medium term. For the first ten months of the current year inflation in Russia amounted to 4.5%, while a year earlier by the end of October this figure has reached 11,2%, RBC reminds. The government’s bill on amendments to the 2016 budget provides for a reduction in the planned rate of inflation to 5.8%, the forecast – to 5.5-5.6 percent.

At the meeting of the Board of Directors on 16 September the Bank of Russia lowered the key rate by 0.5 percentage points to 10% per annum, and informed the market of its plans, in terms of what it will be to change the key rate. Next and the last in 2016 the meeting of the Board of Directors of the Central Bank, which will address the issue of the level of the key rate, scheduled for December 16.

The key rate was introduced in September 2013 with the transition to the inflation targeting regime of the Central Bank. Is the interest rate at which the Central Bank of Russia provides loans to commercial banks in debt for one week, and at the same time the rate at which the Central Bank is willing to accept from banks deposits funds. It plays a crucial role in setting interest rates on Bank loans and the impact on inflation and the cost of funding of banks.

Nabiullina explained the necessity of inflation in Russia not less than 4% 24.11.2016

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