The current international financial crisis is likely to lead to inflation in order to make debt cheaper, Russia’s Central Bank First Deputy Chairman Alexei Ulyukayev said in an interview with Kommersant business daily on Friday.
Ulyukayev said the current crisis was triggered about 10 years ago when monetary authorities started issuing liquidity which was invested in badly assessed risks.
“There are two ways to solve the problem,” he said. “Careful coordinated policy adjustment on a global scale is an unlikely scenario. The second, more realistic way to solve the problem is through inflation, which means depreciation of debt. There is a whole range of different options in between these poles. There are no chemically pure decisions – a working instrument is always somewhere in between. The important thing is which pole it is closer to.”
Europe has failed to introduce unified fiscal rules, he said, which added to the monetary origins of the crisis.
“The problem is that it is easier to set unified norms for market participants than to change fiscal rules. Because fiscal rules are your relations with taxpayers. And they vote for you,” Ulyukayev said.
“This is the collision of policies and rational financial regulating. This is the deadlock for Europe and for America to a lesser extent.”
Ulyukayev said that a unified economic policy must include a policy of minimal risk which would mean reigning in banks’ appetites for high margins.
“We will have to start a period of low margins and moderate credit portfolio growth. We should retain a 10 percent real (credit portfolio) growth for 10 years. It is better than getting 50 percent in the first three years and then falling through the floor and trying to climb back again.”