Central Bank Won't Use Ruble Rate to Fight Inflation

The Central Bank still has ways to curb inflation but no longer plans to resort to using the ruble exchange rate, Konstantin Korishchenko, a deputy head of the bank, said in an interview.

The Central Bank raised mandatory reserve requirements and interest rates this month after year-on-year inflation hit 12.6 percent in January, but markets widely expect the Central Bank to make the ruble appreciate in the near future.

"Exchange rate policy as an element of our anti-inflation policy has practically worked itself out," Korishchenko said.

The Central Bank runs a managed float of the ruble, keeping it stable against a basket of 55 percent dollars and 45 percent euros. The ruble has been weakening against the basket in recent weeks as investors sold Russian assets.

Korishchenko said the anti-inflationary effect of the stronger ruble, which allowed Russia de facto to import at low prices, had been eroded by rising international prices for commodities and food.

"With capital mobility, the currency exchange rate appreciation is a double-edged sword, and an appreciating ruble is like a red rag to a bull for international speculators," Korishchenko said.

He said the mandatory reserve requirements were the strongest anti-inflation measure in the Central Bank's arsenal, while the interest rate rise was merely a signal that the cost of money had increased both at home and abroad.

Korishchenko said the Central Bank would eventually come up with a comprehensive interest rate policy and set its policy rate as part of a general move toward an inflation-targeting regime -- an idea suggested by a number of officials.