Reducing the rate of the Central Bank will not change much in the position of the Russian economy
The Board of Directors of the Central Bank of the Russian Federation decided on lowering the key rate. But the economic situation is such that this decision will change little in its current state. How Come? The answer to this question is looking for in his blog on the website “BUSINESS ONLINE” our author, journalist Dmitry Prokofiev.
Why was this necessary?
Chairman of the Central Bank of the Russian Federation Nabiullina at the press conference was quite optimistic: inflation slowed, the ruble has appreciated, the banking system (after trillion capitalization) works. The economic downturn – it does not matter, in the logic of the Central Bank, he is anti-inflationary factor, as it reduces consumer demand. But despite the external improvement, the central bank cut its key rate by only one point, to 14%. This suggests that the CBR is aware of our economy, something that does not want us to speak, and prefers to act very cautiously. What could it be?
In order to understand the logic that the central bank is guided in its decisions on the key rate, it is necessary to begin to answer a few simple questions. And the first one is: why the key rate in general and that it defines in the economy? Formally, the key rate of the Central Bank determines the value of the loans issued by commercial banks. Now it is 14%. This means that banks can get virtually unlimited money from the Central Bank at 15% or pass it on deposit at 13% (ie, plus or minus 1 pp .; this rule is not always observed, but in general, the Central Bank is trying to act that way). Thus, the increase in the key rate pulls the increase of interest rates on deposits (money of the population and entrepreneurs can attract “cheaper” than to take them at the Central Bank) and, of course, the growth rates on loans.
Of course, there are banks that can receive funds not only at a significantly lower percentage than the key rate, but even below the inflation rate. So, January 30, 2015 the government has placed a deposit in the bank VTB 26 billion. Rubles at 8% per annum from the National Welfare Fund. It is believed that the reduction in the key rate of the Central Bank, specifying the cost of credit in the economy, “there are good” because banks and entrepreneurs easier to get money flowing to the expansion of production, and support employment and wages of employees. Accordingly, the rate increase means an increase in the value of money and the conditions of the Russian “resource-based economy” should hinder the provision of liquidity to currency speculation, as well as to reduce the rate of inflation. It was such considerations CBR explains the sharp hike in December 2014..
MEDICATIONS worse than the disease
As for inflation, it really decreases. In the first 10 days of March it dropped to 12% – almost to the last “official” level. Rosstat data show that the seasonally adjusted consumer price index in February (2.1%) was almost twice lower than in January (3.7%). “Monthly” slowdown in inflation recorded for the first time after the introduction of Russian grocery embargo in August 2014. In early March, the weekly inflation rate was lowest in four months.
But should we share the optimism of the financial regulator?
Prices increased steadily throughout the winter, Russia’s annual food price increase in February was 26.3% compared to February of last year, being 1.5 times higher than basic and general inflation. For comparison, “grocery” inflation in the euro area over the same period did not exceed 0.5%, while the US accounted for about 3%. Given the fact that food costs make up a large part of the cost of Russians, the rise in prices in this segment of the market leads to a reduction in demand for all other goods and services, in turn, reduce the demand Russian manufacturers prefer not to answer a decrease and increase in prices, arguing you need not fight for an increase in the number of customers, and for raising the “average check”. The exceptions are self-employed and micro businesses, forced to choose between “small” money and their complete absence.
Technically, inflation declined, only “medicine” of this economic disease have a lot of side effects. Slower growth in prices has played primarily economic downturn, the first consequence of which was the fall in real wages and incomes, and the second – the budget deficit, high interest rates and the credit crunch.
And the monetary authorities are conscious in fine this report. It is no coincidence still on February 12 meeting with representatives of the banking community in the boarding house “Bor” Elvira said that inflation is no longer the sole criterion for deciding whether to change the key rate of the Central Bank and monetary policy will focus on exchange rate stability and support the economy.
rate is stable – this is a temporary
Before you comment on the prospects of supporting the economy, understand the exchange rate stability. Depreciation of the dollar and the euro against the ruble coincided with a slowdown in inflation, in fact, served as an important reason for this delay. After falling in January by 23% ruble really appreciated. On the Moscow Stock Exchange since the end of January to March 12, the dollar has lost 11% of its value, the euro – 17%.
But it is reasonable to ask whether the ruble appreciation trend and role in strengthening national Currency played the central bank? In fact, greater financial regulator and paid a high price. From January 1 to March 6, 2015 the Central Bank’s foreign exchange reserves fell by more than $ 30 billion. That is almost 8% of the total. Continuation of the policy of such support in the future can be risky.
But, of course, a major factor in strengthening of the ruble has been the growth of prices for oil. The Russian currency fell together with the cost of a barrel, but it is only in the beginning of February oil “hook” for $ 60 and hold at that level until the present time, the ruble added to the price.
In addition, successfully passed the peak payments foreign debts. The collapse in the mid-December 2014 was the result of deficits in terms of dollars, when Russian companies have to pay their creditors. In February of this situation is not repeated, because the market was enough currency as state-controlled exporters actively selling foreign exchange earnings. However, the more they do it will not be signaled Minister of Economic Development Alexei Ulyukayev , said on Friday that “the company has formally can increase the amount of funds in the accounts in foreign currency».
But debts have not gone away. Debts of the first quarter – $ 43 billion., But just something in 2015 will have to pay $ 134 billion (by the way, this amount could rise to $ 150 billion.). In any case, all of the second half will need to pay creditors more than $ 10 billion. Per month. During his press conference Nabiullina said only that the Bank expects to reduce foreign exchange reserves in 2015 to $ 50 billion. During the first two months of 2015 have already spent more than half of this amount. What should happen to the rate of decline of reserves declined? A sharp increase in foreign currency earnings of exporters? Another devaluation of the national currency, for example to the level of 80 rubles to the dollar?
The strengthening of the ruble not a sustainable trend. First, oil prices stopped growing, not to say that there were some fundamental factors that keep them from falling. The cost of Brent crude on London’s ICE trading on Friday, March 13 fell below $ 55 a barrel. The fall was 4.4%, reached a barrel price of $ 54.6. The price of WTI crude oil also declined and fell below $ 45 a barrel. Lower Elevation was $ 44.75. Please note, the price of Brent crude was significantly – by almost $ 10 – higher prices on the North American “standard” oil WTI. Typically, the gap is much smaller, there is no guarantee that the price of Brent has dropped the price of its competitor.
Of course, the Russian Central Bank rate cut will also play on the weakening of the ruble. In strengthening the power of the national currency, by the way, not interested, because the low exchange rate solves several problems. This decrease in imports, facilitating the implementation of budgetary commitments and encourage a number of industrial sectors.
SUPPORT THE VOID
It now remains to consider supporting the Central Bank economy and production.
The data of Rosstat (demonstrating the business activity index in February) suggests that the issue of non-tradable sector, particularly in the services sector (accounting for respectively 70% and 60% of GDP), is reduced. For reference, in an “open” economy, there are two segments, the so-called “tradable sector” – is one that can be displaced by foreign goods, and “non-tradable” – one that can not be replaced. For example, the production of clothing – “tradable sector”, the construction of houses – “non-tradable”, etc. In turn, the index PMI, calculated commissioned by the bank HSBC, indicating a decline in business services to a minimum of 59 months.
show only moderate growth due to manufacturing demand for products that the ratio of quality and price ever would not have been claimed by the consumer under more favorable external conditions – this is what is called import substitution. But the index of business confidence in the manufacturing sector Rosstat, reflecting the assessment of the current demand and short-term forecasts of release, in the first months of 2015 continued to decline. And lowering the key rate of the Central Bank at one point hardly break this trend. Speaking formally, to stimulate the economy the Central Bank, based on its own inflation forecast next year 9% in March 2016 to March 2015, could reduce the rate to 8%. But if the Bank believes its own forecasts?
The economic downturn continues in the country. According to the forecast of the Central Bank of the peak of the recession will be in the first quarter of 2016 and the fall in GDP in 2015 will be 3.5 – 4%. With such a powerful recession can happen anywhere. Strengthening capital flight, non-payment of loans to banks, a sharp drop in budget revenues and, consequently, the inability to fulfill social obligations, unless, of course, is not to devalue the ruble again and again.
A Central Bank’s reserves are not unlimited. On January 1, 2015, they accounted for $ 385 billion. If you subtract this amount from the reserve position in the IMF, the expense of special drawing rights and gold, the actual foreign currency reserves – is $ 328 billion. If we subtract the currency reserve and sovereign wealth fund owned by the Ministry of Finance and distribute outside the competence of the Central Bank, is $ 180 at best $ 200 billion. If we assume that in 2015 the reserves have not declined by $ 50 billion. (As promised CB), and $ 150 billion. (As it follows from the dynamics of reserves and reduce the amount of debt, recall, $ 30 billion. Has been spent since the beginning of the year ), the remaining amount of $ 30 – 50 billion. enough to pay for about two months of imports in the Russian Federation. Unless, of course, by the time the exchange rate and falling incomes will not make the issue of payment of import in principle irrelevant. Of course, the Bank of Russia will not bring the situation to a deficit currency, and a logical step here is to limit the currency of banks – with obvious implications for the ruble exchange rate.
Unanswered Questions
The question of whether the Bank of Russia to “help” the so-called real sector cope with the consequences of the economic crisis and if he could do it in reality is still open. In any case, the current statistics answer to this question does not. But what if we look at the statistics last?
And here we are waiting for some interesting conclusions. The fact is that in the 2010s Russia has already spent a lot of money to diversify the economy and the creation of infrastructure. The costs of all large-scale events (like the Olympics) by three-quarters represent investments in infrastructure. Spending on the military-industrial complex – also diversification (weapon – one of the few competitive Russian goods on the world market). Why did all these “investments” have not provided any appearance of competitive products or reducing the share of oil revenues in the budget? What happened to public money after the budget they fell into the hands of effective public managers, and why they do not transform into highly jobs, which produced the best-selling domestic products? There is no dispute, such products have, but somehow created it away from large public projects.
It is extremely interesting reading and is Rosstat statistics on the financial performance of the organization in 2014. The aggregate profit of non-financial sector declined, but it was mainly due to the internally-oriented sectors, which have not yet been able to quickly compensate for the price grew up costs. But the fact that they raise the prices, no doubt. A profit is export-oriented extractive industries much has grown. In other words, generous government bailout plan proved to be focused on the support of those activities that are already feel quite well, whatever they claimed their lobbyists.
While the current crisis “paid” money people. This depreciating pensions because their indexing focused on last year’s inflation, and any “allowances” until the spring of next year can not wait. This state employees, whose real wages for December 2015 will be reduced by 25 per cent to the level of the beginning of 2014. But non-budget sphere workers can not count on concessions from employers. Therefore, those who argue that our economy will emerge from the crisis, “replacing imports” and focusing on falling domestic demand, either mistaken or deliberately denies the reality.
To answer the question about the real ways out of the crisis need A separate article, but in any case, such a question now should apply not to the Central Bank. It understands and in the Central Bank and the government. The most that can be expected from the financial regulator in the current situation – is to prevent the collapse of the banking system and to keep the ruble within its existing borders, and even make it cheaper, forcing the Russians forced to “buy domestic”, including domestic labor. In this case, we can expect and diversification of the economy, though not in the sense of “breakthrough high-tech industries” and the creation of the next Wunderwaffe, and that migrant workers in the low-paying jobs to replace the Russians. But concern for their well-being will be responsible for the financial control does not, and on television.
Found error in text? Select it and press Ctrl + Enter
No comments:
Post a Comment