Monetary Policy Problems under Capital Inflow to Russia

Abstract

Russian macroeconomic tendencies of the past decade are described in the article. It is particularly mentioned that until recently foreign trade surplus was the main source of liquidity for the Russian economy. Since mid 2005 a noticeable foreign private capital inflow has started, creating a new liquidity source. A significant capital inflow may result in additional inflation and / or additional ruble appreciation while currently used monetary policy instruments appear to be ineffective in this situation. The description of the set of measures to soften negative impact of the capital inflow is also presented.