At central banks from Canada to New Zealand, prices of a wide basket of goods help determine the direction of interest rates. For Russia, increasingly, only one price matters: oil’s.Energy exports, already the lifeblood of the nation’s economy, may now be dictating monetary policy. The head of Russia’s central bank, Elvira Nabiullina says she checks the price of oil several times a day. Last year’s 46 percent plunge in crude prices is making it tougher for Russia to fulfill a plan to gradually introduce an inflation-targeting strategy this year with the aim of reducing price increases to 4 percent by 2017.
Nabiullina shocked everyone with a rate cut last month, just six weeks after raising borrowing costs to 17 percent — in an emergency fashion — from 10.5 percent as falling oil prices sent the ruble into a tailspin. When she brought the key rate back down to 15 percent, inflation was quickening — the January reading came in at 15 percent — and the ruble was sliding. The difference: oil prices seemed to have enjoyed a bit of a bounce.
“Movements in oil prices will continue to determine how much space the central bank has to lower interest rates from emergency levels,” Neil Shearing, chief emerging-markets economist at Capital Economics Ltd. in London, says in an e-mail.
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