October 29, 2014, Moscow - The Director of Sberbank's Center for Macroeconomic Research (CMR), Julia Tsepliaeva, held a press conference where she presented the CMR report "Fixed Exchange Rate: pro et contra."

The CMR has analysed the possible implications of a fixed exchange rate for the Russian economy.

The CMR points out that the idea of fixed exchange rates is not new, but that attempts have rarely been successful. At the same time, a fixed exchange rate accompanied by independent monetary policy would mean introducing limits on capital transactions.

  • Fixing a knowingly weak exchange rate will inevitably lead to higher inflation, while falling imports will only partially offset contraction in domestic demand. Fixing a strong exchange rate will lead to deeper recession, reduced transparency in the economy, slowed lending because of the squeeze on money supply, the formation of multiple exchange rates and significant reserve losses.

"Restrictions on capital flows can only stabilize the exchange rate and capital outflows in the short term. The effectiveness of such a policy is highly controversial; the economy will lose flexibility and resistance to external shocks, while external sector imbalances will accumulate rapidly," according to Julia Tsepliaeva. "The 'long-term price', manifesting itself in the worsening of the investment climate and increasing cost of external financing, may outweigh the positive short-term effects."

The report is published on the Sberbank website.

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Sberbank of Russia
Alexander Baziyan
Public Relations
Tel. +7(495) 957 5721
media@sberbank.ru

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