Russia (bbabo.net), - The Bank of Russia raised the key rate for the eighth time in a row: it was increased immediately by one percentage point and now stands at 9.5% per annum. The Central Bank has been raising the rate for almost a year now against the backdrop of high inflation, which has not yet been brought down. According to the Bank of Russia, high inflation may indicate an imbalance in the economy - this situation will almost certainly require new increases in the key rate.
According to Rosstat, in early February, annual inflation accelerated to 8.8%. At the end of 2021, the inflation rate was 8.4%, which is the highest since 2015. Inflation has been accelerating since last winter, in March 2021, in order to combat accelerated price growth, the Bank of Russia began a cycle of raising the key rate from a record low for Russia's post-Soviet history of 4.25%.
Contrary to the expectations of the Central Bank, there has not been a turning point in the dynamics of inflation to date, the head of the Bank of Russia, Elvira Nabiullina, stated. “Moreover, its sustainable components have even intensified. The main reason is the growing imbalances in the economy. As a result, a tighter monetary policy is required than we expected before. At the same time, we now expect annual inflation to return to the target 4% only in the middle of next year ", she reported. At the end of 2022, the price growth rate will be brought down to 5-6%, the Central Bank is counting.
According to Nabiullina, it would be a mistake to consider the current growth of the Russian economy stable and balanced: high inflation is an indicator of the growing overheating of the economy.
“If measures are not taken to return the economy to a balanced growth path, its overheating will increase and lead to an uncontrolled acceleration of inflation and a subsequent slowdown in the economy up to a recession. High inflation nullifies all the benefits of economic growth for people, threatening their real incomes and savings ", - stressed Nabiullina. The overheating of the economy is a consequence of the growing imbalance between supply and demand, bottlenecks in logistics due to the pandemic, and a shortage of labor, the Central Bank believes.
It is no longer possible to return inflation to 4% this year without a recession
Under these conditions, according to Nabiullina, the distribution of cheap loans (easing monetary policy and lowering the rate. -) will not be able to quickly expand output, but will continue to spur demand. "Excess demand is an increase in demand, which means not an increase in consumption, but an increase in prices. That is why we continue the cycle of raising the key rate," Nabiullina added.
In general, temporary pro-inflationary factors on the supply side turned out to be longer, which led to inflation accelerating twice as high as the target of the Bank of Russia. “There was even an opinion that the increase in the key rate does not in any way hold back the rise in prices. In fact, if we had not started raising the rate last spring, inflation today would have been much higher than 10%,” Nabiullina said. Returning inflation to the target 4% this year without a recession is no longer possible. “To do this, we would have to go for a shock rate increase, which would create threats to both the sustainability of economic growth and, possibly, financial stability. A balanced solution is gradual disinflation, which will bring inflation back to the target without creating risks for sustainable economic growth” - said Nabiullina.
Inflation is growing rapidly because the growth of the key rate does not have an immediate effect on reducing the growth rate of loan portfolios, says Mikhail Sukhov, ex-deputy chairman of the Bank of Russia, general director of the ACRA rating agency. “It is necessary to contain inflation even in the face of significant pressure from external factors in order to prevent the emergence of an “inflationary spiral”. It cannot be ruled out that in order to stabilize prices in the spring, in addition to increasing the key rate, measures will be taken to further limit the lending activity of banks through macroprudential instruments,” admits Sukhov.
The potential limit of the rate increase has been shifted to 11%, but at this level, many enterprises will be forced to refinance at a percentage that will not cover their profits - therefore, the threat of bankruptcies will escalate, fears Boris Titov, authorized under the President of the Russian Federation for the protection of the rights of entrepreneurs. In his opinion, it is also impossible to artificially slow down demand in the economy. “We have already proposed raising government spending through the smart borrowing system. In this case, OFZs issued by the Ministry of Finance would be bought by Russian banks and immediately re-mortgaged in the Bank of Russia. to the Ministry of Finance," Titov says.According to him, this way it is possible to annually attract an amount of 10-15% of budget revenues and use it to increase the incomes of pensioners, state employees, provide an analogue of food stamps, for child benefits, medical and educational certificates. At the same time - to subsidize interest rates and expand lending. "But these should be colored funds, issued not in the form of money, but in the form of related opportunities for access to certain goods or services of social significance. No part of these funds should go to bankers, industrialists and entrepreneurs except through the pockets of citizens ", - says Titov.
According to the chief economist of the Expert RA agency Anton Tabakh, the Central Bank is acting in accordance with its capabilities to fight inflation. "The Bank of Russia was one of the first to fight inflation, and now world central banks are also taking it up. But it is not a fact that inflation must be fought at any cost. If it is necessary to cut budget spending to reduce inflation to 4%, then the blow to the economy will be stronger than from an additional increase in prices. As for the ability to "play off" the consequences of a very soft global monetary policy, it is quite possible. But it is unlikely that it will be possible to stop the consequences of a shortage of production components, raw materials or a physical shortage of workers by monetary methods, "says the expert .
bbabo.Net