Russia should tighten spending and banking rules to combat “variable and difficult to predict” capital flows that are spurring increased volatility on domestic financial markets, according to Alexei Ulyukayev, first deputy chairman of the central bank.
Emerging economies are raising interest rates after loose monetary policy in developed countries increased the risk of asset bubbles and fanned inflationary pressures, Ulyukayev and his adviser Mikhail Kulikov wrote in this month’s issue of the Russian magazine Voprosy Ekonomiki, or Questions of Economics.
“Speculative inflows to emerging markets, including Russia, once again can’t be excluded,” Ulyukayev wrote. “Every inflow may be followed by heavy outflow.”
While Bank Rossii is seeking to contain volatility by widening the ruble’s trading corridor, the government needs to implement a policy of “fiscal targeting,” capping expenditures and making the budget less vulnerable to swings in oil prices, according to Ulyukayev.
Monthly movement of capital into and out of Russia last year fluctuated between outflows of as much as $24 billion and inflows of $10 billion, Ulyukayev said. Net capital outflows may reach $10 billion this year, Deputy Economy Minister Andrei Klepach said Aug. 30, reversing an earlier forecast for inflows.
Changes in banking rules should raise capital and liquidity requirements to counter future risks, Ulyukayev said. Authorities need to tighten regulations governing “systemically” important financial organizations, he said.
During the global financial crisis, “such banks in most cases received priority direct or indirect government aid, which cast doubt on the principle of free competition on the financial market and the banking sector,” he wrote.
Regulators need to broaden capital requirements for these institutions and overhaul their organization to enable them to function in crisis conditions, Ulyukayev wrote.
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