According to Interfax, the Ministry for the Economy has sent a proposal to President Vladimir Putin, outlining several modifications to the current inflation-targeting regime. Among other things, they envisage:
a special mechanism, involving cooperation between the CBR, MinEconomy and the Ministry of Finance when defining the inflation target;
the possibility to tweak the inflation target, even after approval; and
widening the inflation target band (currently 3pp) to accommodate for one-off shocks.
As we have warned since the latest hikes in April and July, an unnecessarily uber-tight policy stance might backfire as it could trigger an intensification of the government’s efforts to dilute the central bank’s independence one way or another — be it demands to ramp up special subsidised funding facilities or direct involvement in the inflation targeting framework, as this proposal seems to suggest. This news transform the issue from a hypothetical risk to a developing story.
In light of the substantial political support granted to the CBR’s Governor by the President on multiple occasions, we would not draw any far-reaching conclusions at this juncture. However, subsequent newsflow and the policy debate will need to be monitored for any signs of cracks in the CBR’s armour.
Vladimir Kolychev, Daria Isakova
VTB Capital analyst
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