Press Service

The Central Bank of the Russian Federation (Bank of Russia)

Press Service

12 Neglinnaya Street, Moscow, 107016 Russia;

On change of inflation target for 2014 (unofficial translation)

The Bank of Russia External and Public Relations Department informs that on 27 September 2013 the Bank of Russia Board of Directors decided to change from 4.5% to 5.0% inflation target for 2014 stated in the draft Guidelines for the Single State Monetary Policy in 2014 and for 2015 and 2016, which will be submitted to the State Duma of the Federal Assembly of the Russian Federation. The targets for 2015 and 2016 remain unchanged at 4.5% and 4.0%, respectively, which reflects the Bank of Russia’s goal to reduce inflation over a medium-term horizon.

This decision is based on the revision of the main parameters of the Bank of Russia’s macroeconomic forecast. The revision took place due to the change in the parameters of indexation of the natural monopolies’ regulated prices and tariffs in Forecast of Social and Economic Development of the Russian Federation in 2014 and for 2015 and 2016 published by the Ministry of Economic Development of Russia on 24 September 2013.

Inflation target of 4.5% for 2014 was set on the basis of macroeconomic forecast which had assumed that regulated prices and tariffs for all groups of customers, including households, would remain unchanged in 2014 compared with 2013. According to the revised forecast, regulated prices and tariffs for households in 2014 will be increased by the rate of previous year inflation times 0.7. This could add about 0.5 percentage points to inflation in 2014.

Inflation target is defined in terms of growth rate of headline consumer price index. Therefore making monetary policy decisions the Bank of Russia takes into consideration all the factors that affect inflation. According to the Bank of Russia estimates, achieving inflation target equal to 4.5% in 2014 in the case of increase in tariffs for households would require tighter monetary policy in the short term than initially planned, that could weigh on economic growth. At the same time, if monetary policy stance remains as implied by the previous macroeconomic forecast, inflation would exceed the target. This could undermine the credibility of the Bank of Russia policy and decrease its effectiveness in the future.

In order to avoid both of the abovementioned outcomes and believing that the inflation target should be attainable under base-case forecast scenario without imposing excessive downside risks on economic growth, the Bank of Russia considers the target of 5.0% to be appropriate for 2014.The size of the target revision was determined taking into account the estimates of tariff indexation effect on inflation as well as the practice of setting inflation targets with the precision of 0.5 percentage points.

The draft Guidelines for the Single State Monetary Policy in 2014 and for 2015 and 2016, amended after consideration by the Government of the Russian Federation and the National Financial Council and updated for new data releases, was approved by the Bank of Russia Board of Directors on 27 September 2013 and will be published on 30 September 2013.

27 September 2013

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