Will they take away key rate from Russian Central Bank?

Deputies of the parliamentary faction 'Fair Russia', headed by its Chairman Sergey Mironov, proposed the State Duma to consider the bill, which may give the National Financial Council (NFC) - a collective body of the Bank of Russia, which consists of the Chairman of the Bank of Russia and representatives of the Russian President, the Government and the Parliament - the authority to determine the key rate and a number of other powers.

Under the current law, the NFC, as well as the board of directors of Russia’s Central Bank, are responsible for the ongoing Central Bank monetary policy. "However, there are no legal mechanisms to enable NFC to influence interest rates determined by the Central Bank, and his policy," TASS cited one of the authors of the initiative, Mikhail Emelyanov, as saying.

The bill will redistribute the powers to determine the main instruments of monetary policy between the Board of Directors and the NFC, that is, they proposed to consolidate the system of interest rates on the Bank of Russia's operations, which is based on the use of the key rate and the interest rate corridor, at the legislative level, as well as determine the value of the key rate and the interest rate corridor in the framework of monetary policy.

The NFC will also be able to receive "an authority to set the key rate, the upper and lower boundaries of the interest rate corridor, as well as to define the Bank of Russia's operations at the key rate, the operations at rates within the boundaries of the interest rate corridor, and operations at rates, which go beyond the boundaries of the corridor of interest rates".

The board of directors of Russia’s Central Bank could set interest rates within the boundaries of the interest rate corridor, as well as the interest rates on the Bank of Russia's operations, which, in accordance with the NFC decision, can be carried out at rates outside the boundaries of the corridor of interest rates, the document says.

Its right to submit the NFC proposals regarding the key rate, the boundaries of the corridor of interest rates and the Bank of Russia's types of operations, which can be performed outside the boundaries of the corridor of interest rates, will remain.

The adoption of the bill would create "effective mechanisms of interaction between the Russian Government and the Bank of Russia in the implementation of the unified state economic policy, including the monetary policy," the authors say.

Advisor on macroeconomics to the CEO of the 'Opening-Broker' brokerage house, economist Sergey Hestanov, speaking to Vestnik Kavkaza, is pessimistic about the initiative to take the authority of defining the key rate from the Russian Central Bank. "The operational mechanism of central banks has been developed already in the 18th-19th centuries and hardly differs in different countries. Any attempts to decide complex questions through the voting usually lead to sad consequences," he said.

The expert recalled that the executive branch has enough methods of influence on the Central Bank. "In Russia, the head of the Central Bank is appointed by the head of the state - that is enough to exercise control over the Bank of Russia's activity. Such attempts to give the Central Bank any operational guidelines are fraught with unpredictable consequences. If something like that happens, we need to be prepared for growing prices, devaluation of the ruble and other unpleasant consequences," the advisor on macroeconomics to the CEO of the 'Opening-Broker' brokerage house warned.

Professor of the RANEPA faculty of Finance, Money Circulation and Credit, Yuri Yudenkov, noted the meaninglessness of giving the authority to control the key rate to the National Financial Council. "Let me remind you that in the NFC there are three people from the government, three persons from the President, three from the State Duma and two from the Federation Council. This means that the government would not be able to neither control, nor block decisions on the rate because it does not have a majority," he explained.

Yudenkov recalled that the government has its own ways to influence the Central Bank. "If the government wants to control the Bank of Russia's activities, then they need to change the approval of the Bank of Russia's report in the law. Today once a year the Central Bank chairman makes an annual report. If the government wants to control the activities of the Central Bank, then it is necessary to change the legislative framework," the economist pointed out.