March 21, 2023

The Board of Directors of the Bank of Russia at a meeting held on Friday, March 17, kept the key rate at 7.5% per annum. What dictated the actions of the regulator and under what conditions he can change the policy, understood “Profile”.

Last rate: how the monetary policy of the Central Bank will change in 2023

The decision of the Central Bank was expected, based on how the situation in the economy has been developing in recent weeks. Inflation, which demonstrated active growth in January, February and the first half of March, has significantly decreased. Moreover, weekly indicators in some cases dropped to zero and even negative values.

However, the time for easing monetary policy (MP) has not yet come. IN press release The Central Bank, issued following the meeting, focuses on the fact that the acceleration of the execution of budget expenditures, the deterioration of foreign trade conditions and the state of the labor market continue to form pro-inflationary risks. “Inflationary expectations of the population have significantly decreased, but remain at an elevated level, as are the price expectations of enterprises. The live data points to a continued recovery in business and consumer activity,” the regulator’s website says.

As for possible further decisions on the key rate (the next meeting, according to the plan, will be held on April 27), they will be made taking into account inflation dynamics. The Board of Directors will also take into account the processes of economic restructuring, risks from internal and external conditions, and the reaction of financial markets.

There is room to fall: what will 2023 be like for the Russian economy

According to Alexander Losev, General Director of Sputnik Capital Management, there are four main stages in economic cycles: recovery, recovery, recession and depression. Therefore, the monetary policy of the Central Bank can be pro-cyclical or stimulating counter-cyclical. “Sometimes the need to intensify economic growth arises as a reaction to external negative factors, which is relevant for the Russian economy now. In such cases, monetary policy is often consistent with the actions of the government,” explains Losev.

To support business activity, they resort to stimulating expansionary economic policy – fiscal reflation, the expert notes. Its essence is that tax and budget incentives work to increase the volume of national production within the country. If the measures are exhausted, and the results are not achieved, then a kind of monetary swing may arise, where on one side is the regulator, on the other is the Ministry of Finance. In this scenario, budget policy is seen as one of the pro-inflationary factors, which is what is happening now.

“If the task is to transform the economy and gain economic sovereignty, which implies the accelerated development of a number of industries, then the monetary policy must be stimulating,” Alexander Losev believes. “It means expanding the money supply at affordable interest rates. The task is solved by lowering the key rate.”

Cheap money is important for the banking system to be sure of support and interested in lending to the economy. The tightening of the monetary policy can be considered as a temporary measure to stop external shocks, the expert noted.

“Hawkish” signal: the Central Bank kept the rate at 7.5%, but allowed it to increase

This is exactly how the Russian Central Bank acted in the fall of 2014 or at the end of winter – the beginning of spring 2022. Today, there is no urgent need for this, since the problems that have arisen in the banking system of the US and the EU will not directly affect Russia. “Sanctions in this case have a positive effect, since the toxic collapse of a California bank and a number of Western financial institutions and technology investors cannot seriously harm the Russian banking system, as it did during the 1998 and 2008 crises,” Alexander Losev is sure.

General Director of BusinessDrom Pavel Samiev believes that the Board of Directors of the Central Bank had every reason to leave the key rate at the current level. Pro-inflationary pressure, which many analysts predicted to increase at the beginning of the year, still remains an unrealized risk. “Now Rosstat records deflation or very low inflation in most sectors,” the expert draws attention. “Those factors that seemed to have to play an increasing role in the dynamics of price growth did not show themselves, but they are relevant, which the regulator took into account, deciding to keep the key rate at 7.5%.”

Steel strategy: how the Central Bank managed to keep the economy afloat

On the other hand, the ruble has been under pressure in recent months, and the foreign exchange market has become a source of tension for monetary policy, said Pavel Samiev. He does not rule out that the situation may worsen following a further deterioration in the trade and balance of payments. And then a rapid weakening of the ruble is possible, which will force a tightening of the monetary policy.

In turn, Marina Kashina, co-founder and executive director of, commenting on the results of the meeting of the Board of Directors of the Central Bank to Profile, recalled that at present the prerequisites for raising the key rate in the second quarter of this year remain. The main reason for tightening monetary policy, from the point of view of the Bank of Russia, is an increase in economic activity, which stimulates domestic demand, but accelerates inflation in the economy.

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