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This chapter discusses the challenges for monetary and exchange rate policy given large terms terms of trade shocks and volatile capital flows. It first examines the effectiveness of the quasi fixed exchange rate regime in fostering disinflation during the long upswing in oil prices, arguing that, while the upturn in inflation from mid 2007 can be attributed partly to a surge in international commodity prices, underlying inflation remained high due to an excessively accommodative monetary policy. The chapter then reviews monetary and exchange rate policy after the onset of the global financial crisis. It acknowledges that the pre announced stepwise adjustment of the exchange rate was costly, but suggests that this was a second best policy given debt dollarisation. The first-best policy would have been to allow more exchange rate flexibility in the pre-crisis years, thereby weakening the incentives for corporate borrowing in foreign currency. The chapter suggests that not all conditions for adopting inflation targeting in Russia are yet in place, but that preparations should be accelerated.