In its yearly update on Monetary Policy Transparency in Russia, Oxford Analytica stated that Russia's overall score of "Enacted" remained unchanged from 2004. The independence of the Central Bank of the Russian Federation (CBR) is formally enshrined in law. Both the Central Bank Law, as well as a commitment to effective macroeconomic policy-making, mean that the central bank cooperates with the government in certain areas, whether formally or by choice. The establishment of unequivocal de facto independence in the post-Soviet era has been gradual and further complicated by the challenges of the 1998 financial crisis. However, this process now appears largely complete and the central bank's operations are, moreover, supported by adequate human and material resources and generally characterized by a high degree of professionalism. The main challenge to the central bank's operations from the perspective of transparency has to do with the conduct of monetary policy making at a time when the CBR remains committed to combating inflation and managing the exchange rate at the same time. During the Financial Sector Stability Assessment in 2003, the International Monetary Fund identified many areas for improvement in respect to the clarity of roles, responsibilities and objectives of the CBR and open process for formulating and reporting monetary policy decisions. In the 2006 Article IV consultations, the Fund suggested that the CBR could strengthen its monetary policy framework by focusing on a continuous inflation path rather than an end-year target, although a formal inflation targeting would still appear premature.

General Overview

In its yearly update on Monetary Policy Transparency in Russia, Oxford Analytica reports in 2005 that the independence of the Central Bank of the Russian Federation (CBR) is formally enshrined in law. Both the Central Bank Law, as well as a commitment to effective macroeconomic policy-making, mean that the central bank cooperates with the government in certain areas, whether formally or by choice. Beyond the CBR's constitutional responsibility to maintain the stability of the ruble, there is a statutory requirement to establish the exchange rate regime jointly with the government. More generally, the Central Bank Law calls on the CBR to support the government's economic policy to the extent it can without compromising its statutory responsibilities. The establishment of unequivocal de facto independence in the post-Soviet era has been gradual and further complicated by the challenges of the 1998 financial crisis. However, this process now appears largely complete and the central bank's operations are, moreover, supported by adequate human and material resources and generally characterized by a high degree of professionalism. Moreover, in spite of ongoing policy cooperation, the central bank has at times assumed policy stances that are at variance with those of the government. A recent case in point has to do with the CBR's concern over the inflationary impact of the government's looser fiscal stance. (OA 2005, p. 308)

The main challenge to the central bank's operations from the perspective of transparency has to do with the conduct of monetary policy making at a time when the CBR remains committed to combating inflation and managing the exchange rate at the same time. This dual targeting regime is unlikely to be abandoned in the near term, given the persistent and even increasing inflationary pressures in the country. At the same, sensitivity to exchange rate volatility is high, both in Russia's export industry and among the population as a whole, since many prices continue to be denominated in US dollars. Under the circumstances, full monetary policy transparency is impossible in as much as it would undermine the effectiveness of monetary policy. Although the central bank is providing steadily more information about the currency basket and its ruble appreciation targets, full transparency about the nature of the exchange rate would invite speculative behavior on the part of the banks. Similarly, the targeted inflation range, which was recently revised in response to a clear increase in the Consumer Price Index, must be defined with care in recognition of its importance in influencing inflationary expectations. The reliance of this regime remains critical at a time of high liquidity and fiscal loosening, since the range of monetary policy instruments at the moment is not sufficient to absorb the liquidity. (OA 2005, p. 308)

In general, the CBR has continued its exemplary progress towards greater openness about its operations. The central bank's website is highly informative and Russia's subscription to the Special Data Dissemination Standard (SDDS) of the International Monetary Fund (IMF) on January 31, 2005 constituted an important recognition of the progress made as well as a binding commitment to international standards.(OA 2005, p. 308)

The compilation and dissemination of the monetary data are governed by the terms and conditions of the Law on the Central Bank of the Russian Federation of July 10, 2002. According to the Law, the CBR is an independent organization within the scope of authorities given by the Constitution of the Russian Federation and other Federal Laws. The Bank of Russia is responsible for collecting and publishing aggregated analytical and statistical indicators. The responsibility for the compilation and dissemination of data on the monetary authorities and banking statistics is assigned to the Bank of Russia's General Economic Department. (SDDS website)

The 2003 Financial System Stability Assessment conducted by the IMF reports that the CBR uses several vehicles for achieving transparency in objectives and implementation of monetary policy, including two annual publications: "The Basic Guidelines of State Integrated Monetary Policy" and "The Central Bank of the Russian Federation Annual Report". The CBR and the government also jointly draft and publish an annual Declaration of the Economic Policy. The main provisions of these documents are explained in public speeches and interviews to the mass media by the CBR officials. There is also a monthly "Bulletin of Banking Statistics" and the CBR Bulleting that is published weekly. Frequent press releases are issued as a means of communicating with the public. Extensive use is made of the CBR website in both Russian and English. (IMF 2003, p. 62)

One of the policy recommendation for monetary policy in past Article IV consultations by the IMF had been that monetary policy be primarily focused on inflation control, unburdened of exchange rate considerations. In the 2006 Article IV consultations with Russia, the Fund reports that starting in 2005, the CBR has begun to put somewhat greater emphasis on inflation control and has allowed some increase in exchange rate flexibility. The change has, however, been limited and large unsterilized interventions have continued to fuel rapid growth of monetary aggregates. (IMF 2006, p. 16)

In the context of the 2006 Article IV consultations, CBR officials were confident that inflation will continue to decline. They believed that the planned fiscal relaxation discussed with the mission is consistent with a downward inflation path that will get close to the official 81/2 percent target for end-2006 and to the lower end of the 61/2-8 percent target range for end-2007. They stressed that the tightening of monetary policy during the past 12-15 months reflected a gradual shift toward increased focus on inflation reduction, and a heightened political awareness that some ruble appreciation is inevitable in the current circumstances. They cautioned, however, that political support for exchange rate flexibility is still fragile, and that an increase in inflationary pressures resulting from an even larger fiscal relaxation than currently planned would seriously test such support. In view of this, they were not prepared to give priority to meeting the inflation target by committing to scale back interventions as needed to meet this target. (IMF 2006, p. 20)

IMF staff welcomed the renewed decline in inflation, but cautioned that additional exchange rate flexibility would be needed to consolidate and extend this decline. It commended the CBR for the somewhat more flexible exchange rate policy, recognizing that even this very limited change had been politically difficult, partly reflecting the sizeable negative wealth effect of ruble appreciation due to large foreign exchange savings. IMF staff noted, however, that much of the reduction in inflation had been due to one-off supply-side measures and that monetary policy remained very accommodative. With fiscal policy set to exacerbate strong cyclical pressures, staff believed that inflation would exceed the end-2006 target unless the CBR allowed accelerated appreciation. In any case, in view of the uncertainties affecting the short-term outlook, the CBR should stand ready to scale back its interventions and allow the ruble to appreciate as needed to meet the inflation target. Responding to the CBR's reluctance to commit to this, IMF staff cautioned that the risk to inflation is rising as slack in the economy is being soaked up. They reiterated that the CBR should seek to strengthen confidence in its determination to reduce inflation by refraining from announcing exchange rate targets, not least by avoiding to set real exchange rate targets in its annual forward-looking report on monetary policy. While agreeing that formal inflation targeting is still premature, staff also suggested that the CBR could strengthen its monetary policy framework by focusing on a continuous inflation path rather than an end-year target. (IMF 2006, p. 21)

The Principles

Clarity of roles, responsibilities and objectives of central banks.

EN

Oxford Analytica (OA), in its 2005 Report on Monetary Policy Transparency in Russia, rates Russia's compliance with this principle as "Enacted." The International Monetary Fund (IMF) reported that the roles, responsibilities and objectives of the Central Bank of the Russian Federation (CBR) are clearly defined in statutes and regulations. The institutional relationship between monetary and fiscal operations is clearly defined, as are agency roles performed by the CBR on behalf of the government. The CBR has been making additional efforts aimed at enhancing disclosure of its equity interest in two domestic banks and in several commercial banks established abroad. Such participation is transparently described in the CBR law while the Annual Report provides additional disclosure on the relationship with domestic and foreign subsidiaries, including a summary of their main activities. (OA 2005, p. 309; IMF 2003, p. 62)

The main objectives of monetary policy as specified in the CBR statute are ensuring price and exchange rate stability. Other objectives set for the CBR include the development of the banking system and a smooth functioning payment system. The objectives are publicized on the central bank's website and are explained through written reports submitted to the State Duma (parliament). The CBR statute stipulates that the central bank should fulfill its objectives unencumbered by other bodies of state authority. However, the powers of the National Banking Council to determine the CBR's budget could compromise this requirement. (IMF 2003, p. 62)

The main document governing the structure and actions of the Central Bank of Russia (CBR) is the 2002 Federal Law on the Central Bank of the Russian Federation. The CBR is headed by a chairman who is appointed by the State Duma for a four-year term, which can be renewed twice. The CBR has a 13-member Board of Directors whose members include four first deputy chairmen, four deputy chairmen, and heads of the Moscow and St Petersburg branches. (OA 2005, p. 309)

The Constitution of the Russian Federation singles out the "protection and stability of the ruble" as the main function of the CBR which "it shall exercise independently from other bodies of state power." Additionally, the CBR Law mandates the central bank to ensure the development of the Russian banking system and the efficient and uninterrupted functioning of the settlements system. (OA 2005, p. 309)

The CBR fulfils several functions in pursuance of its objectives. It is responsible, jointly with the government, for the formulation and execution of monetary policy, as well as for the issuance of currency, for last-resort lending, for setting the rules to effect settlements and for banking operations, for servicing all government budget accounts, for managing foreign currency reserves, for regulating and supervising credit institutions, for registering the issuance of securities by credit institutions, for exercising foreign exchange regulation, for setting the procedures for international settlements, for setting and publishing official exchange rates, for forecasting and compiling the Russian balance of payments, for regulating currency exchanges, for economic forecasts and data publications, as well as other functions as specified by law. (OA 2005, p. 309)

The Central Bank Law defines the central bank as an independent institution which should remain outside the influence of the government as it is not included in the structure of federal bodies of state power and acts as a special institution with the exclusive right to issue money and organize money circulation. The independence of the CBR in protecting and maintaining the stability of the ruble is constitutionally enshrined. The central bank is legally accountable to the State Duma of the Federal Assembly. The Duma has the power to consider the guidelines for monetary policy, a policy document the central bank is required to compile annually, and to adopt decisions on them. Moreover, the responsibility for the elaboration and execution of monetary policy is shared with the government. Monetary policy decision-making remains a consensual process, shared between the CBR and the Ministry of Finance (MoF). (OA 2005, pp. 309-310)

During the Financial Sector Stability Assessment in 2003 the IMF recommended the following actions: (1) to clarify the institutional relationship between debt management operations, the CBR and the Ministry of Finance; (2) to disclose the terms on which interest is paid on government foreign currency an ruble deposits; (3) to provide a more complete description of the procedures for participation of the central bank in secondary markets; (4) to disclose the CBR's equity participation in certain domestic and overseas commercial financial institutions and to publish their financial activities on well-recognized principles and procedures; (5) to report the consolidated operations of the CBR and all its subsidiaries and disclose transactions relating to precious metals and gems; (6) to further clarify the principles on which the division of responsibility for secondary market arrangements between the CBR and MoF are based. (IMF 2003, pp. 63-64)

Open process for formulating and reporting monetary policy decisions.

EN

Oxford Analytica (OA), in its 2005 Report on Monetary Policy Transparency in Russia, rates Russia's compliance with this principle as "Enacted." As per the International Monetary Fund (IMF), with respect to the openness of the process for formulating and reporting monetary policy decisions, the law on the Central Bank of the Russian Federation (CBR) establishes the basic instruments and methods of monetary policy; specific plans for the year are presented annually in the Basic Guidelines for State Integrated Monetary Policy. Changes in the setting of monetary policy instruments are increasingly being announced publicly and explained through published reports, press releases and on the website. Additional explanations are provided by officials in appearances before the State Duma (parliament) and in the CBR's Annual Report. An advanced schedule for meetings of its Board of Directors (the monetary policy-making body) is not published. While policy changes are always announced immediately after a decision of the Board, an explanation of the main considerations underlying a change in monetary policy is not systematically disclosed, the CBR has in the recent period begun formal consultations, on a regular basis, with the relevant market participants and the public as necessary. (OA 2005, p. 312; IMF 2003, p. 62)

The CBR has also singled out containing inflation as a key policy priority and, indeed, the principal target of its monetary policy. In connection with this objective, the annual Monetary Policy Guidelines established a target for consumer price inflation on the basis of fiscal policy projections. The central bank is openly committed to adopting a formal inflation-targeting regime in the medium term. In pursuance of the constitutional mandate to ensure the stability of the ruble, the CBR Law charges the central bank with the task of establishing and supporting the ruble exchange rate. To this end, the CBR currently pursues a dirty float exchange rate policy. (OA 2005, p. 312)

The CBR uses all the standard instruments of monetary policy: interest rates, required reserve ratios, open-market operations, refinancing credit institutions, currency interventions, money supply growth targets, direct quantitative restrictions, and bond issues. The CBR has been gradually increasing the range of its monetary policy instruments in response to the need to absorb excess liquidity created by high oil prices. (OA 2005, p. 313)

The National Banking Board (NBB) is composed of 12 members of whom two are delegated by the Federation Council from among its membership, three by the State Duma from its deputies, three by the president of the Russian Federation, and three by the government. NBB members are not employees of the CBR. The CBR chairman is a permanent member. The NBB meets at least once every three months. It takes its decisions by a simple majority vote with the chairman, if necessary, casting the decisive vote. The minority opinions are recorded in the minutes if requested. The CBR's Board of Directors (BoD), consisting of the Chairman of the CBR and 12 other members, is the permanent policy-making body. The BoD is responsible for elaborating, together with the government, the monetary policy guidelines. It also approves the CBR's annual financial statements. The BoD sets the main monetary policy variables: compulsory standards for credit institutions, the amount of reserve requirements, changes in CBR interest rates, and limits on open-market operations. It also adopts decisions on the issuance of currency. The Board of Directors is required to meet at least once a month but the CBR does not disclose an advance meeting schedule. The National Banking Board is required to have at least quarterly meetings. (OA 2005, pp. 313-314)

The Annual Report provides a survey of the economic situation in Russia, information about government finances and public sector debt, an overview of the financial sector, data on the balance of payments and foreign debt, a discussion of the global economy, and an account of the activities of the CBR, including a section on banking regulation and supervision. The CBR's Guidelines for the Single State Monetary Policy is the main publication on monetary policy for the year. The Bulletin of Banking Statistics appears every month. The CBR's weekly review "Vestnik Banka Rossii" discloses monetary and economic indicators, analysis of data, and all new legal documents. The CBR provides press releases for any major events, decisions, and meetings. Most of the central bank's publications, with the exception of the Vestnik are available in both Russian and English, although the translation sometimes appears with considerable delay. The main analytical publications are the monthly Information and Analytical bulletin "Russia: Economic and Financial Situation" and the less frequent regional review "Current Trends in the Russian Economy (Regional Dimension)". (OA 2005, p. 314)

The CBR chairman is required to appear before the Duma twice a year and can be required to do so more frequently. Regular public hearings on monetary policy are not held. The CBR Law stipulates a consultative process in connection with major changes to relevant legislation. (OA 2005, p. 314)

During the Financial Sector Stability Assessment in 2003, the IMF recommended that Russian authorities: (1) improve the timeliness and regularity of explanation of changes in monetary policy and the underlying considerations that led to them; (2) consider announcing an advanced schedule for monthly meetings of the Board of Directors; (3) make more systematic and time bound the disclosure of the "main considerations" underlying a policy change; (4) provide a higher frequency of the presentation of monetary policy operations and its underlying assumptions. (IMF 2003, p. 64)

Public availability of information on monetary policy.

CP

Oxford Analytica (OA), in its 2005 Report on Monetary Policy Transparency in Russia, rates Russia's compliance with this principle as "Compliance in Progress." According to the International Monetary Fund (IMF), with respect to the public availability of information the Central Bank of the Russian Federation (CBR) has an appropriate range of publications. Senior officials of the CBR also make public appearances before the State Duma, give speeches to financial groups, and give media interviews as a means of explaining CBR policy decisions and actions. The CBR regularly discloses its summary balance sheet and aggregate information on market transactions and the types of transactions on a monthly schedule in the Bulletin on Banking Statistics and posts this information on its website. Apart from information on international reserves, the presentation and release of data are consistent with Special Data Dissemination Standards (SDDS). Texts of regulations issued by the CBR are readily available to the public and published in the CBR's weekly Newsletter and also posted on the CBR website. (OA 2005, p. 317; IMF 2003, p. 63)

Following several years of preparatory work and the de facto adoption of the relevant requirements, Russia joined IMF Special Data Dissemination Standard (SDDS) on January 31, 2005 and now presents its monetary statistics in accordance with the SDDS methodology. This step constitutes an important recognition of the quality of the CBR's work in the area of statistics, as well as a formal commitment to upholding international best practice standards. An advance release schedule is available on the website. (OA 2005, p. 317)

The CBR's Bulletin of Banking Statistics contains monetary data. The central bank website posts daily a variety of data including the official exchange rate, the CBR's deposit rates, and government securities market rates. The CBR further publishes all main financial and external sector indicators on its website, accompanied by an explanation of the methodology used to obtain them. The CBR publishes a consolidated balance sheet on a monthly basis. An annual consolidated balance sheet is included in the Annual Report. (OA 2005, p. 317)

The CBR is under legal obligation to publish monthly data on its balance, cash flow, and overall operations. Its Annual Report must be published by July 15 of the following year. The CBR also publishes its major public document Guidelines for the Single State Monetary Policy, on an annual basis. The CBR established a press centre in 2001, when it held the first public presentation of the Annual Report. (OA 2005, p. 318)

A wealth of information on the CBR's activities, including all its publications, is available on the central bank website. A selection of key speeches, public reports, and interviews is reproduced there. There are relative few published materials on the CBR's analytical and research work, apart from the results which are included in the periodic publications. The vast majority of the information at the website is provided in both Russian and English. Contact information is available for public enquiries. (OA 2005, p. 318)

Accountability and assurances of integrity by the central bank.

CP

Oxford Analytica (OA), in its 2005 Report on Monetary Policy Transparency in Russia, rates Russia's compliance with this principle as "Compliance in Progress." The International Monetary Fund (IMF) reports that transparency practices are observed in the area of accountability and assurances of integrity. The Central Bank of the Russian Federation (CBR) is accountable to the State Duma (parliament) which appoints and can discharge the chairman and members of the Board for specified reasons. The CBR is required to submit its Annual Report, including audited financial statements, to the Duma. Twice a year, the Chairman of the CBR speaks before the State Duma about the operations of the CBR; the State Duma holds parliamentary hearings on the operations of the CBR with the participation of the CBR representatives. The CBR does not disclose a fuller explanation of the internal governance procedures, including the performance of the internal audit systems, and the current standards for the conduct of financial affairs and rules to prevent conflict of interest. Standards for the conduct of the personal financial affairs of officials and staff are established in the CBR law but there are no legal provisions to protect CBR staff in the conduct of their duties. (OA 2005, p. 319; IMF 2003, p. 63)

The CBR Law stipulates that the central bank is accountable to the Duma. The CBR chairman must report to the Duma bi-annually and at any other time at the discretion of the Duma. The CBR is also legally required to submit its Annual Report -- containing an audited financial statement -- to the Duma no later than May 15 of the year following the reporting year. The Duma will complete its deliberations on the report by July 1. The Duma holds special hearings with officials from the Audit Chamber of the Russian Federation that is charged with auditing CBR activities. The CBR Law mandates the CBR to submit its draft monetary policy guidelines to the Duma by August 26 of the preceding year and the final guidelines -- containing projected scenarios for the year -- by December 1. The Duma decides on the guidelines before passing the federal budget for the year. (OA 2005, p. 319)

The Annual Report contains the CBR's financial statement. This is published along with the external auditor's statement. There are some lacunae in the CBR's external audit reports due to legislation governing state secrets. The National Banking Board (NBB) is legally required to select a licensed auditing firm to carry out an audit of the CBR's accounts before the end of a given reporting year. The Accounts Chamber of the Russian Federation is responsible for auditing CBR operations affected by the federal law "On State Secrets." These include holdings of precious metals and the division serving the Ministry of Defence. The Chamber publishes the conclusions of its findings in the CBR Annual Report. (OA 2005, p. 319)

The internal audit of the CBR is carried out by the central bank's Internal Audit and Inspection Department. The internal audit division has representatives also in regional branches of the CBR. The Internal Audit and Inspection Department is responsible for assessing the legal compliance of the financial and economic activities of the CBR and its branches and to eliminate any shortcomings in a timely fashion. (OA 2005, p. 319)

The CBR Law imposes few requirements on employee conduct. People on the central bank's payroll are not allowed to engage in other paid employment (outside of teaching and research) and must inform the CBR's board within ten days of any bond or share purchases of any credit institution. CBR employees are forbidden to disclose information about the CBR without the consent of the Board of Directors. The CBR's personnel is guided by the "Model Qualification Standards of the Staff of the Bank of Russia," approved by the CBR Board of Directors in July 2003. (OA 2005, p. 319)