The Bank of Russia and its monetary policy seem to have limited influence on consumer behavior and savings.
In other words, the response from the public to the rise of the key rate has been slow.
The Central Bank’s monetary policy is currently aimed at cooling the market, at stimulating a decline in production and services and at swiftly reducing consumption, notes Managing Partner of +7 PRODUCTIONS Alexander Krivosheyev.
“All this should come through restrictive interest rates. And eventually, according to the principle of market balance, we should see a decrease in the clearing price, across all segments of all markets. The expected result is, consumer price index decreases, and the inflation rate, accordingly, too,” the expert notes. “This is how the Central Bank thinks – and it thinks very systematically and logically. But the reality is different. Inflation persists; consumption rates are not decreasing as much as we would like. Why? It has to do with Russian mentality, our historical experience, and the general lack of financial literacy.”
Alexander Krivosheyev believes that the overwhelming number of Russians take it day by day and do not save money. And if they have any significant assetd, it is not fiat money at all but real estate – a house or an apartment inherited from their grandparents.
“And then the genetic (or ordinary) memory kicks in. Years 1991 and 1998 come to mind like pictures of Judgment Day. Back then, ‘all the gold turned into shards,’ and banknotes were worthy enough only to cover bathroom walls instead of popular posters with Japanese beauties (a popular trend at the time),” the expert reminds. “As a result, people are afraid to take their money to the bank even for high interest rates. They remember the gigantic interest rates of the past and the terrible outcome. Maybe not everybody but a significant part of the public.”
Why does consumption continue? The expert believes it is the genetic memory being triggered again. Now is the time of change that people associate with ration cards and shortages. As long as the shelves are full, they must buy. And again, they have lack of trust in paper money.
“On top of this mental cake, we have a cherry. A poet widely known in small circles once said, ‘Everything will get worse, but so far, another record has been broken.’ That is how everyone thinks now and expects the situation to worsen. That is why they live today – because tomorrow may not come,” Alexander Krivosheyev adds.
Eventually, the Central Bank’s sensible mechanism works properly only in the b2b segment that is aligned with reality. In this segment exactly, businesses are reducing production volumes, cutting expenses and dropping services that are unrelated to the main production.
“As a marketing agency, we observed a noticeable decline in August, particularly with a shift in demand towards ‘survival kits’—such as lead generation, technical support for businesses, and packaged SMM services for VK and Telegram. Consequently, the response from citizens regarding the key rate isn’t exactly slow; it’s simply not what we expected. To thrive within the market economy, we need to change people’s mindsets and help them learn to trust this model,” Alexander Krivosheyev concludes.