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V Joint High-Level Eurosystem – Bank of Russia Seminar

12 March 2009

The Eurosystem – comprising the European Central Bank and the 16 national central banks of the euro area – and the Bank of Russia held their fifth high-level seminar on 11 and 12 March 2009 in Vienna, Austria. The seminar, hosted by the Oesterreichische Nationalbank, was attended by governors and high-level representatives of the Eurosystem and the Bank of Russia. Seminar participants also included representatives of the European Commission, the Office of the Government, the Federal Assembly and ministries of the Russian Federation. The purpose of the seminar was to further strengthen dialogue and enhance relations between the Bank of Russia and the Eurosystem, which have intensified in recent years. The main issues addressed at the seminar pertained to recent macroeconomic developments, the impact of commodity price developments on inflation as well as financial stability in Russia and the euro area.

Participants were welcomed by Ewald Nowotny, Governor of the Oesterreichische Nationalbank, who also addressed the seminar with a key-note speech on banking and financial stability in Russia and in the euro area. Governor Nowotny stressed that it is a common challenge to restore confidence in financial institutions by credible recapitalization and loan loss recognition as well as to revive interbank markets and strengthen their resilience in times of stress. He emphasized the need to act decisively in order to overcome the short-term challenges of the crisis. On a longer term perspective, Governor Nowotny underlined the mutual benefits associated with a continued active involvement of European banks in the Russian financial market.

In the opening remarks , ECB President Jean-Claude Trichet stressed that the financial crisis has hit both the euro area and Russia. In light of the common challenges, the most immediate task of policy makers in the euro area and Russia is to help resolve this crisis quickly and thoroughly. President Trichet concluded that over the past year the relations between the Eurosystem and the Bank of Russia have further strengthened with the ongoing implementation of a very important central bank technical cooperation programme in banking supervision and internal audit (see press pelease of 20 March 2008).

In his key-note speech, Bank of Russia Chairman Sergey M. Ignatiev addressed the topical issues related to the Bank of Russia’s monetary policy. In late 2008, economic conditions changed significantly and the Bank of Russia adjusted its monetary policy. It began actively to use the instruments of monetary regulation to preserve banking sector stability and took additional measures to boost banking sector liquidity. Looking ahead the Bank of Russia will face the challenges created by the world financial crisis above all. Despite the problems stemming from the financial turbulence, the Bank of Russia has set itself the task of gradually bringing inflation back onto the downward path. It is still committed to switch to inflation targeting and will continue to scale down its involvement in the rate-setting process on the foreign exchange market for the purpose of moving to a floating exchange rate regime. In the medium term, the Bank of Russia and the Government of the Russian Federation will focus their efforts on securing conditions for sustained economic growth.

Seminar discussions focused on the following main topics:

Recent macroeconomic developments

In their review of recent macroeconomic developments, seminar participants noted that global economic activity has weakened substantially. In both the euro area and Russia, foreign demand for exports has declined, and domestic demand has been negatively affected by declining confidence and a tightening of financing conditions. They agreed that the outlook for the euro area and the Russian economy is surrounded by considerable downside risks, but also noted that the significant policy measures taken over recent months to deal with the financial turmoil should provide support to economic activity.

The impact of commodity prices on inflation

Participants discussed recent developments in global commodity prices and their impact on consumer price inflation in the euro area and Russia. They noted that the sharp in increases in commodity prices until the middle of 2008, followed by substantial commodity price declines, have exerted a considerable influence on consumer prices, mainly through energy-intensive components in the euro area and through food-intensive components in Russia. Participants agreed that a good understanding of the nature and duration of these commodity price fluctuations, and of their impact on the medium- to long-term outlook for price stability, was essential for the conduct of monetary policy.

Financial stability in Russia and the euro area

The participants reviewed developments in the banking sector and the implications of the global financial crisis for financial stability in the euro area and Russia. They noted that, though specific developments have been different in the euro area and Russia, financial stability conditions have worsened significantly since the onset of the global financial turmoil. They also discussed the action plans taken by the respective governments to contain financial stability risks and restore confidence in the banking sector.


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