Monetary System in Russian Federation

Topics: Inflation, Central bank, Monetary policy Pages: 8 (2354 words) Published: March 11, 2014


November 2013

Economy of Russia: brief introduction
Russia’s economy is classified by the UN as an economy in transition. It is also classified by its level of development as measured by per capita gross national income (GNI) as an economy with upper middle income. The country has undergone significant changes since the collapse of the Soviet Union, moving from a globally-isolated, centrally-planned economy to a more market-based and globally-integrated economy. In the Global Competitiveness Report 2012-2013 by World Economic Forum Russia is ranked at 67th place, and has drops one place since last year. The country suffers from inefficiencies in the goods (134th), labor (84th), and financial (130th) markets. The weak level of competition (136th) caused by inefficient anti monopoly policies (124th) and high restrictions on trade and foreign ownership as well as the lack of trust in the financial system (134th) contributes to this inefficient allocation of Russia’s vast resources. On the other hand, Russia’s high level of education, and its large domestic market (7th) represent areas that can be beneficial to improve Russia’s competitiveness. Growth

Russia’s GDP growth in 2011 and 2012 was 4.3 and 3.4 percent respectively. However it went down to 1.8 percent in September 2013. The slow down of Russia’s economy had already started in 2012 and as a result, it stagnated in global economic rankings. Economic growth has dropped to half the level of that in a decade before 2008 crisis. Weakening domestic demand as well as slow down in investment demand have been the main factors pushing down growth despite that capacity utilization has almost reached the precrisis level (Exhibit 1). Consumption, the main growth driver in the past, expanded much slower than in 2011 and 2012. Moreover, investment activities dropped sharply as a result of the finishing of large infrastructure projects, such as construction for the Winter Olympic Games in Sochi and the Northern Stream pipeline. Official statistics on the contribution to aggregate growth during the first quarter of 2013 shows a significant decrease from all demand components of GDP: consumption, investment, and net export, compared to the same period in 2012. i Unemployment

The unemployment rate dropped from 7.6 persent in 2010 to 5.4 percent in 2011. However, this indicator grew insignificantly in 2012 up to 5.7 percent (Exhibit 3). The demand for labor in 2013 has stabilized what reflects the slowdown in the real sector. The seasonally adjusted unemployment rate averaged 5.7 percent in May–August 2013, which is equal to that of 2012. Since the beginning of 2013, the market also saw a decline in the number of employed and economically active people what to a certain extent can be explained by real wage growth drop to almost zero after growing at two-digit rates in the first half of 2012. Inflation

The inflation rates (CPI) in 2012 and 2011 accounted for 5.06 and 5.6 percent respectively (Exhibit 3). The consumer price index had stayed high during most of the first half of 2013, staying above 7 percent due to higher than expected prices for food (8.7 percent) and services (8.0 percent). Only by August CPI inflation arrived at 6.5 percent which slightly exceeds the end-year inflation range targeted by the central bank (5–6 percent), while core inflation, which excludes food and gasoline, remained in the targeted range at 5.5 percent in August. The Central Bank of Russia remains fully committed to inflation targeting and therefore resisted to change its main policy rates despite of risk of slow economic growth. This also has to do with tight labor market and negative real interest rates which means that inflation is still exceeding money market rates. Indebtness

The external debt of the Russia (to non-residents) increased by $92.9 billion over 2012, and reached $631.8 billion as of 1 January...
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