The governor of the Russian central bank has suggested that more cuts could come as it closely monitors inflation and fluctuations in the oil markets even though Russians may have witnessed national interest rates on a steep path lower in recent years.

“I think we should be cautious. We should be conservative and we should consider some inflationary risks,” Elvira Nabiullina, governor of the Central Bank of Russia, said when asked about how stabilizing oil prices could affect the bank’s benchmark rates.
Mentioning a potential rise in shale oil production, but suggested that the bank could revise higher its baseline scenario for oil to trade at $40 a barrel, it was “very difficult” to predict the dynamic of oil prices for the longer term, mentioning a potential rise in shale oil production,  she added.

“We should be very conservative in our monetary policy. We cut our interest rates and I think we have room for easing more but the pace of this easing will depend on the economic situation, on actual inflation, on inflationary expectations, on the dynamic of oil prices,” she said.

“We are data dependent and every meeting, every policy setting meeting we analyze all these factors and we decide the next step.”

According to data from Reuters, from levels of nearly 17 percent just over two years ago, Russian inflation has slowed to just above 4 percent. With her comments underlining that the bank is carefully watching whether this drop in inflation is only a temporary phenomena, Nabiullina stated that the target was for inflation to hit, and remain close to, 4 percent by the end of this year.

If inflation stays near 4 percent, a nominal interest rate of around 6.5 percent would suffice, as indicated by the bank’s own internal research, she highlighted. After two cuts this year already, its key rate is currently 9.25 percent.

“We have this elevated inflation expectation. They are not anchored, they’re higher than our target. That’s why we are trying to keep this toughness of our policy to achieve our target for medium term. Of course we see some inflationary risks related to the dynamic of oil prices – now they are quite high but who knows that dynamic of oil price is not very predictable we can say.”

Russia’s central bank governor told CNBC in the exclusive interview that Moscow has become accustomed to tolerating U.S. imposed economic sanctions. However, if its economy is to realize its potential, the country requires robust structural reforms, she added though.

“I think that the Russian economy has overcome this effect of (U.S. imposed) sanctions, it’s sure. We see that our estimation that the Russian economy had turned to growth in mid-2016 and now it’s stronger.” Elvira Nabiullina, governor of the Central Bank of Russia, told CNBC.

“But we think that the potential growth is not very high – it’s about 1.5 to 2 percent… I think that we need some comprehensive economic policy with coordinated monetary policy, fiscal consolidation policy and robust agenda of structural reforms,” Nabiullina added.

As a result of its annexation of Crimea and has been accused of destabilizing eastern Ukraine, Russia is currently enduring the sharp end of tough international sanctions from Washington.

However, if Russia meets its commitments in the Minsk Agreements and that the G-7 were willing to work with Russia on regional issues, sanctions could be rolled back, members stated in a communiqué at last week’s G-7 meeting.

(Adapted from CNBC)

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