Russian inflation has slowed to just above 4 percent from levels of nearly 17 percent just over two years ago, according to data from Reuters. Nabiullina stated that the target was for inflation to hit, and remain close to, 4 percent by the end of this year with her comments underlining that the bank is carefully watching whether this drop in inflation is only a temporary phenomena.

She highlighted that the bank’s own internal research indicates that a nominal interest rate of around 6.5 percent would suffice if inflation stays near 4 percent. Its key rate is currently 9.25 percent after two cuts this year already.

“We have this elevated inflation expectation. They are not anchored, they’re higher than our target. That’s why we are trying to keep this toughness of our policy to achieve our target for medium term. Of course we see some inflationary risks related to the dynamic of oil prices – now they are quite high but who knows that dynamic of oil price is not very predictable we can say.”

Overcome the effect of sanctions?

Moscow has become accustomed to tolerating U.S. imposed economic sanctions, Russia’s central bank governor told CNBC in the exclusive interview. However, she added though the country requires robust structural reforms if its economy is to realize its potential.

“I think that the Russian economy has overcome this effect of (U.S. imposed) sanctions, it’s sure. We see that our estimation that the Russian economy had turned to growth in mid-2016 and now it’s stronger.” Elvira Nabiullina, governor of the Central Bank of Russia, told CNBC.

“But we think that the potential growth is not very high – it’s about 1.5 to 2 percent… I think that we need some comprehensive economic policy with coordinated monetary policy, fiscal consolidation policy and robust agenda of structural reforms,” Nabiullina added.

Russia is currently enduring the sharp end of tough international sanctions from Washington as a result of its annexation of Crimea and has been accused of destabilizing eastern Ukraine.

However, at last week’s G-7 meeting, members stated in a communiqué that sanctions could be rolled back if Russia meets its commitments in the Minsk Agreements and that the G-7 were willing to work with Russia on regional issues.

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