CRB’s High Interest Rates: Triumph of Market Fundamentalism in Russia

Ongoing Ruble crisis reflects irrelevance of CRB’s policy measures. Tighter monetary policy and currency free float implementedby CRB to stabilize Ruble led to directly opposite result. Several months of “managed devaluation” changed into panic selloff inDecember 2014. The panic in the currency market took place despite massive FX reserves controlled by CRB and translated intoserious economic distress. With key policy rate at 17% Russian economy is moving towards artificially depressed growth along withweak currency and high inflation. Stagflationary trap became a material risk for the economy. The main reason behind Bank of Russia’spolicy choices is its commitment to market fundamentalism framework. CRB failed to recognize that its retracement from thecurrency market created far from equilibrium conditions and triggered irrational behavior of market participants along the board.Should external conditions remain hostile for Russian economy and oil prices keep moving lower CRB’s policy irrelevance will bringinto question regulator’s credibility. That all might cause unnecessary damage to Russian economy.