GENERICO.ruEconomicsNabiullina warned about raising the key rate instead of reducing

Nabiullina warned about raising the key rate instead of reducing

The Bank of Russia fell into the inflation trap

From the Central Bank, the market has heard many times that the main guideline for reducing the key rate is inflation: they say, if it slows down and approaches the target of 4%, then the rate will go down. However, at the April meeting, the regulator for the fifth time kept it unchanged at 7.5%, despite a record fall in inflation below 2.5% by the beginning of this week. The position of the Central Bank of the Russian Federation was explained at the traditional press conference by the Chairman of the Bank of Russia, Elvira Nabiullina.

Photo: cbr. en

For the financial regulator, one sharp decline in annual inflation is not enough to make a decision to lower the key rate. “Our monetary policy acts with a lag, it affects the economy with a lag, and it is directed to the future, focuses on the future of inflation, including the inflationary expectations of citizens, businesses, and investors,” the Chairman of the Central Bank of the Russian Federation explained the April decision of the Board of Directors . Moreover, the regulator closely monitors the budget deficit. If the situation with filling the state treasury worsens, then the Central Bank will be ready to raise the key rate at the next meeting.

Nabiullina explained that from the point of view of decision-making for the Bank of Russia, “the indicator of the structural deficit is primarily important, and not budget expenditures.” So at the next meetings of the Board of Directors of the Central Bank, an increase in the key rate is more likely than its reduction. “Our key rate forecast, if you look at this year, it allows for some possibility of a rate cut, however, we continue to consider a rate hike more likely,” Nabiullina said. “How much this probability has increased or decreased, I don’t presume to argue, we will look at the factors.” The head of the Central Bank of the Russian Federation added that the regulator intends to assess how its decisions will affect inflation in 2024, when it is quite realistic to return to the target of 4%. In the current year, despite the April slowdown, at the end of the year, the price increase will be higher than the value observed in this month.

An interesting story happened on the eve of the meeting of the Board of Directors of the Bank of Russia. The work of the head of the Russian mega-regulator was praised by the chairman of the US Federal Reserve System (FRS) Jerome Powell. During a conversation with Russian pranksters, known online as Vovan and Lexus, he said that the sanctions policy of Western countries failed largely due to the competent actions of the Russian government and the Central Bank. According to Powell, the head of the Bank of Russia is “an extremely capable specialist.” Excerpts from a conversation with him were published on April 27 in the Telegram channel of the famous show duet. Such recognition of merit, given how many sanctions the US and its allies have imposed on the Russian financial sector over the past year, is worth a lot. And it was all the more gratifying to hear at Nabiullina's press conference that the Bank of Russia had improved its forecast for Russian GDP dynamics in 2023. Now the Central Bank expects its growth in the base scenario in the range of 0.5% to 2%, as economic activity increases faster than previously expected, domestic demand is on the rise and business continues to adapt to new realities. Recall that the previous forecast of the Bank of Russia provided for a change in GDP from a decline of 1% to growth of 1%. At the same time, according to Elvira Nabiullina, “threats to financial stability” remain in the global economy, which will put pressure on its growth. The only positive moment is the post-pandemic opening of the Chinese economy.

One of the reasons for the problems of Western countries, according to the head of the Central Bank of the Russian Federation, was the distribution of “helicopter money” during the coronavirus pandemic. Because of which, after the end of the lockdowns, these countries faced a “large overhang of pent-up demand”, savings, and supply-side restrictions did not allow the production of enough goods, as a result, inflation in these countries rose to forty-year highs. But in Russia, problems will not be solved in this way. “You remember our position: we are against helicopter money, we are for targeted support for the most vulnerable social groups during periods when there is a significant drop in income,” Nabiullina emphasized. It probably follows from this that no additional payments should be expected this year.

On the other hand, a “third form of money” — a digital ruble — can be approved if the results of the test use that has already begun satisfy the regulator. How many such rubles are planned to be issued and on what their creation will depend, the regulator also said, emphasizing that there are no benchmarks in this area. “The Central Bank does not set targets for the issue of digital rubles, it will be determined by demand,” Nabiullina noted. “Piloting the digital ruble will last until the end of the year, possibly longer if needed.” At the same time, the Central Bank is confident that the introduction of the digital ruble will not lead to an outflow of funds from bank accounts.

The Bank of Russia also paid attention to aggressive advertising of credit products, intrusive calls and other annoying marketing techniques used by financial organizations. The regulator plans to take this area seriously, despite the fact that customers in most cases are themselves guilty of being pestered by calls with “interesting offers”. As Nabiullina noted, people themselves often agree to receive calls and advertising by signing a big long contract and do not even notice that they have given it. “The first thing we want to do now is that such consent be drawn up in a separate document, with a hotel signature, so that a person pays attention to it, or through a special form on the website,” she shared her plans. “And there must be a deadline for this consent, it cannot be extended automatically.” Thus, the Bank of Russia intends to protect clients of financial ecosystems from emotional purchases under the influence of aggressive advertising, so that there is not too short a distance between an impulse and the purchase of a product or service, common sense does not yield to emotions, and the client does not take actions that he later had to regret.

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