GENERICO.ruEconomicsThe Bank of Russia explained why it kept the key rate unchanged for the fourth time

The Bank of Russia explained why it kept the key rate unchanged for the fourth time

Elvira Nabiullina answered MK's question about the cessation of preferential mortgages: “These are just horror stories.”

The press conference of the Central Bank of the Russian Federation on June 7 was different from previous similar events. Firstly, its start was delayed by more than 3.5 hours due to a speech by Russian President Vladimir Putin at the main session of the St. Petersburg International Economic Forum (SPIEF-2024). The second reason that aroused increased interest in the Central Bank’s statements was related to the decision to maintain the key rate at 16%, given that market expectations on this matter were divided. How the regulator sees the processes taking place in the economy – in the material of MK.

Elvira Nabiullina answered MK's question about curtailing preferential mortgages: “These are just horror stories Photo: ru.freepik.com

Following tradition, the press conference was attended by the Chairman of the Bank of Russia, Elvira Nabiullina, and the Deputy Chairman of the Central Bank of the Russian Federation, Alexey Zabotkin. The assembled journalists this time were interested in the reasons why the regulator’s Board of Directors decided to leave the rate unchanged. The fact is that inflation, one of the main parameters that the Central Bank focuses on when making its decisions, increased by June. At the end of May, Rosstat estimated its level at 8.14%, against the April value of 7.84% and the March value of 7.72%. With such figures, it is impossible to say that inflation is slowing down in our country. But the regulator nevertheless kept the key rate unchanged for the fourth time. It has been at the level of 16% since December 2023.

However, at the first summer meeting, the Central Bank decided to toughen the signal to the market, indicating that if price increases cannot be curbed, then at the July meeting the key rate will be raised. As Nabiullina emphasized, sustainable inflation rates may decline more slowly than was included in the baseline scenario. The regulator does not rule out the possibility of a “significant increase” in the key rate in July if inflation pressure does not begin to decline. “What significant means is a rate increase of more than one percentage point,” explained the head of the Central Bank of the Russian Federation. According to Bank of Russia calculations, the peak of annual inflation will occur in the third quarter of this year. The price increase that will be observed in the period from July to September will take into account an almost ten percent increase in housing and communal services tariffs. As for the May tax innovations – an increase in income tax from 20% to 25% and the introduction of a progressive personal income tax scale – their impact on inflation, according to Nabiullina, “will be generally neutral.”

Commenting on the decision taken by the Board of Directors of the Central Bank of the Russian Federation, Alexey Zabotkin emphasized that the regulator will act in such a way as to prevent stagflation (a situation where an economic recession and high unemployment are accompanied by rising prices. -) in the Russian economy and ensure not only a low level of inflation, but and stable GDP growth.

Assessing the prospects for the country's further development, Nabiullina pointed out that tension in the labor market, “in particular, historically low unemployment” is one of the indicators of economic overheating. So far, the Central Bank cannot determine which scenario the situation will develop further. Previously, the regulator expected that economic overheating would begin to subside in the second quarter. However, the risk of an alternative scenario has now increased. But the Bank of Russia will consider it in more detail at a meeting in July, when full data on price dynamics in May and June will be released, and final figures on lending and economic activity will appear. At the same time, at the moment, Russia’s GDP growth is “near the upper limit” of the regulator’s expectations. Let us recall that in the April forecast, the Bank of Russia announced that by the end of 2024 it expects this indicator to increase to 2.5-3.5%.

In this regard, MK asked how the cancellation of the preferential lending program from July 1 would affect the economic indicators of our country. The Bank of Russia has emphasized many times that it insists on targeted assistance to families in need of housing. However, it was the massive preferential mortgage that supported the Russian economy during the pandemic and post-pandemic recovery. There are expert estimates that after July 1, due to a decrease in housing sales, we can expect a near collapse of the real estate market. Construction is rightly considered the engine of the economy. There are studies that claim that almost every 10th Russian works in this field and related industries. There is a concern that the curtailment of mass preferential mortgages could lead to bankruptcies of enterprises and citizens, an increase in loan defaults and other negative phenomena.

“A lot of horror stories are being drawn that there will be massive programs of preferential mortgages, which more often result not in an increase in the affordability of housing, but in an increase in prices and profits in the construction sector, something that we have already seen,” Nabiullina emphasized, answering a question from MK. — We expect mortgages to continue to grow. But not at a rate of 30% plus, but at a more balanced pace. According to the estimate we had for April, it was 7-12%. This is a growth rate, but it will not create distortions that will negatively affect people.” The head of the Central Bank of the Russian Federation recalled the imbalance in prices between the secondary and primary housing markets in Russia, when a person who has taken out a mortgage overpays for the cost of an apartment due to an increase in the price per square meter in new buildings precisely because of preferential programs. As for the impact on the construction sector, the Central Bank of the Russian Federation is confident that this market will grow, that large profits have been accumulated there and there is a “safety cushion”. The regulator does not expect bankruptcies in this area, nor a massive “release” from their jobs of people already working or associated with the construction sector. “The horror stories they are talking about, in my opinion, are just horror stories,” emphasized the head of the Central Bank of the Russian Federation.

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