Russian real interest rates are second highest in the world, standing at level of 5.5%. Most economies have restrictive interest because they expand too quickly, while the recession-hit Russia would probably benefit from a more streamlined monetary policy. The inflation, which is nearly two times higher than the central bank target of 4%, nourishes memories of price growth during the collapse of Soviet Union. Therefore, the governor of the Central Bank of Russia, Elvira Nabiullina, choose to be conservative with the moderately tight monetary policy and promised to keep interest rates by more than 3 percentage points above inflation to guide expectations.
In June, the consumer price index (CPI) of Russia rose by 7.5%, while interest rates on Friday was 10.5%.
Too tighter monetary policy and excessively high real interest rates create new risks for Russia. For some economists, the high interest rates strangle lending and threaten to delay the return of the economy at the growing trend, which the IMF expects 2017. Russian economy also risk attracting speculators in the carry trade, which would increase the appreciation of the ruble and brake the exports. Borrowing dollars and investing in rubles bring a return of nearly 18% since the beginning of the year. This is the second best carry trade market after the Brazilian real.
Retention of the interest rates is a way to improve the reputation of the Central Bank of Russia, which at the end of 2014 moved to a regime of inflation targeting. The deputy governor of the Central Bank of Russia predicts that it will take 15 to 20 years of growth of prices within a target of 4%. In modern Russian history, inflation has been near or below that level only for six months in 2012.
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