The head of the Central Bank of Russia Elvira Nabiullina said that the monetary policy of the regulator affects only the demand in the economy, therefore printing and distributing money will not lead to its growth, but will only accelerate inflation. Ms Nabiullina noted that a decrease in the key rate to 0% in Russia could lead to double-digit inflation and a depreciation of the ruble.
“Monetary policy only affects demand. Incidentally, this is the answer to the question of why, for the sake of economic growth, not print and distribute money to everyone. Demand will grow, but supply will not, and there will only be an increase in inflation instead of economic growth, “Elvira Nabiullina said in an interview with Komsomolskaya Pravda.
She believes that lowering the key rate to zero in Russia, following the example of developed countries, would lead to a sharp rise in inflation. “It would definitely be double-digit numbers. There would be several grave consequences at once, ”said Ms. Nabiullina. Among such consequences, she named the fall in the ruble exchange rate due to the transfer of savings into foreign currency and a decrease in business investment in development.
According to her, in developed countries, inflationary expectations of the population and business are “anchored”, they are accustomed to the fact that prices do not rise, and therefore during a crisis they do not have a rush in stores. At the same time, the head of the Central Bank believes that with the growth of inflation, these countries will also begin to raise rates.
Ms Nabiullina expects that the effect of the increase in the key rate will manifest itself gradually. Inflation may “rise a little more” in the coming months, and in the fall, move to a slowdown. According to the forecasts of the Central Bank, inflation will reach 4% per annum in the second half of 2022.
On June 11, the Central Bank raised the rate to 5.5%. Elvira Nabiullina then said that the rise in inflation in the country is of increasing concern. According to her, the acceleration of price growth was influenced, in particular, by the soft monetary policy. She said that the Central Bank will continue to raise the rate due to the continuing rise in inflation.
For more information about the rate hike, see Kommersant’s article “Shire step”.