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Nabiullina: better policy coordination in crisis good, no mingle

Coordination between fiscal and monetary policy gets closer at a time of crisis, which is perfectly natural. However, they must not be mixed up, Bank of Russia's Elvira Nabiullina emphasized.

'The coordination between fiscal and monetary policies, between the government and Central Bank has intensified. This is perfectly normal, but there is no crossing lines. Policies cannot get mixed up when responsibility areas erode. We use really different tools, and we can change different things, hence we must exercise utmost caution,' Nabiullina told VTB Capital's Russia Calling forum responding to presidential advisor's Maxim Oreshkin's comment that developed nations are merging the two policies to enhance aggregate demand management.

Oreshkin had said that developed countries are rethinking their economic policies and look for new approaches. Originally, they made use of quantitative easing. 'They're now making the next move, compelled by the pandemic. They are largely combining the fiscal and monetary policy in a bid to support demand by any means available,' Oreshkin stated.

In his opinion, developed countries will next migrate from tools-based policies to variables management policies. "Not to manage the monetary sphere and fiscal domain separately, but to manage aggregate demand and demand composition. This transition will be taking place, and this is what we currently observe in developed countries,' Oreshkin said emphasizing that China has achieved that over the past 20 years.

Aggregate demand management was a topic already raised by Oreshkin before, when he was economic development minister, although found no sympathy at the bank of Russia.

'I am somewhat sceptical about aggregate demand management in general with the help from the state, or using fiscal or monetary policy tools, because other factors influence demand. Say, an investment climate will influence demand for investment. That's what does. There is such thing as the world's demand,' Nabiullina commented Thursday. She emphasized that structural reform is becoming the order of the day supporting sustainable economic growth and demand.

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