The Bank of Russia kept the key rate at 7.5% per annum for the fourth time in a row, the inflation forecast also remained unchanged – 5-7% in 2023 and a return to the target level of 4% in 2024. Economist Igor Nikolaev, Chief Researcher at Institute of Economics of the Russian Academy of Sciences, told Invest-Foresight what this behavior of the regulator means.
– Igor Alekseevich, such stability of the value of the key rate is good? What does this mean for the economy?
– This is still good, because it brings some predictability to our domestic economy, in assessing its condition. Facing very high uncertainty of the economic situation, when at least in terms of the key rate the situation is a little more understandable (it is stable, although the Central Bank gives certain signals, a kind of corridor from 7.5% to 9%), but in general, at this, albeit “corridor,” level, this is an important benchmark for business.
As a result, this is a decrease, albeit not much, in that uncertainty of economic situation that is certainly noticeable today, and so it is a negative factor for all economic entities.
– Is the Central Bank’s low rate for citizens good or bad?
– Everything is relative. When the level of 7.5% is fixed, it is still not 20%. So if we consider it low and it’s really low, it’s well for citizens.
Because this guarantees at least that loan rates will not be beyond any limits. In fact, in this situation I am talking about mortgages, because it is for them that the Central Bank rate is the benchmark.
It is good also from a different point of view. A low rate forms certain inflation expectations. In this situation, it forms low inflation expectations, and low inflation expectations give more calmness in terms of rising prices to a particular person, give him ability to plan his consumer activity.
– There is a lot of debate about what the Central Bank rate should be for the economy to grow. What figure would you give and why?
– I will not give any number for one simple reason: I believe that the value of the key rate as an influence on economic growth is exaggerated.
The argument is understandable, of course: low rate, therefore low rates on loans, therefore people take money, invest in production – all is good and wonderful. But the key rate is not the sole main factor affecting the economy!
Rosstat conducts monthly surveys, measuring business activity. And there nine factors exist: the very uncertainty of the economic situation, which I have already mentioned, high tax burden, lack of own funds etc. So, a high rate on commercial loans, neither in recent years, nor now – especially, was not included in the top three negative factors.
It turns out that the business itself does not say that this size is critical for it, and it is really not critical. After all, you can work and earn with the key rate at 15%, and at 20%. But, for example, if the tax burden grows, what will happen next with business is no longer very clear.
So the rate is certainly an important factor in influencing economic growth, but it is far from being the sole and not the most important one.
– Let’s move on to inflation. The named figures of 5-7% art almost twice lower than figures recorded in 2022. Due to what was it possible to curb inflation?
– It was a success to curb inflation, and this is the most important, I believe, factor – that the ruble has strengthened significantly. At highs, it reached 120 or 130 rubles per dollar and euro, and then strengthened to 50 rubles. Now it is growing again.
Of course, the ruble is now more untied from the exchange rate, but if ruble fails again, then inflation will react instantly. Last year we saw how much the ruble strengthened after the well-known events of February and March.
This played a role in terms of curbing inflation. The decrease of real disposable incomes of citizens also played its role. Yes, year-over-year it was just minus one percent, but it is important here that it was already declining from not very high base. Because in recent years, if you take data from 2014, for example, real disposable income decreased by more than 6%, despite all support measures and the like.
No wonder, by the way, we have trade indicators in a serious minus, at the end of the year about 6.5%. And in the last autumn months, it fell even in products at 3-4%, which is very clear evidence that the population began to buy less.
All this, of course, affected inflation.