See original post by Sputnik International here.
Let’s be honest, Sputnik isn’t known as the most U.S.-friendly radio station, and they certainly pulled their preferred highlights from my interview for this article. But, I know this going into these programs. I also know that if I don’t speak honestly, someone else will be invited to say whatever is on their mind, no matter how stupid.
In this interview, I was invited to speak about the Russian central bank’s recent actions regarding the country’s high inflation. Its policy shifts are frankly not that different from the choices central banks have made throughout history, given the same high inflation scenario. Even our own Federal Reserve bank in the U.S. had to make the decision to bump up its fed funds target rate above 15 percent in the early 80s to drive down inflation that was hovering in the mid-teens.
In Russia’s case, they’ve been battling high levels of inflation for years, and decided to take what was perceived as a drastic measure and hike its targeted interest rate to above 14 percent to try and drive down that onerous devaluation of its money, also deciding to free float the Ruble. Although it might have gotten itself into this mess, this is one action that the Russian central bank had to do, and a governor of any central bank in the world would likely have done the same.
Combined with an initiative aimed at diversifying its export markets, Putin and his advisers are making the smartest moves they can to stave off American sanctions and the effects of falling oil prices. We may not like that our sanctions aren’t having the desired impact, but Russian economists aren’t dumb. It will take a little more than some light sanctions to stump the world’s 10th largest economy, and a country with the world’s largest land area full of natural resources.
However, I do note that Russia’s economy is still shrinking and will continue to contract until at least the end of next year, probably longer if the world’s economy doesn’t improve. Also, I think the country should have kept its targeted interest rates higher for longer, to ensure inflation is under control. It would have cost more employment, but Russia would be better off in the end. We’ll see who was right soon enough.