This chapter discusses the challenges for monetary and exchange rate policy in an environment of large terms terms-of-trade shocks and a volatile capital account. It first examines how effective the quasi-fixed exchange rate regime was in fostering disinflation during the upswing in oil prices (2002 to mid-2008), arguing that, while the upturn in inflation from mid-2007 can be attributed partly to the surge in international commodity prices during this period, underlying inflation remained high due to an excessively accommodative monetary policy stance. The chapter then reviews monetary and exchange rate policy after the onset of the global financial crisis, which triggered a large negative terms-of-trade shock and massive capital outflows. It acknowledges that the pre-announced gradual depreciation of the exchange rate was costly, but suggests that this policy can be seen – ex post – as a second-best policy in an environment of debt dollarisation. However, the first-best policy would have been not to offer such strong incentives for corporate borrowing in foreign currency in the years leading up to the crisis by allowing more exchange rate flexibility. The chapter suggests that not all conditions for adopting inflation targeting in Russia are yet in place, but that preparations should be accelerated.