Evgeny Nadorshin: "The fact that US Federal Reserve raised interest rate won't be a problem for Russian economy"
Yesterday, US Federal Reserve decided to raise the interest rate, setting it at the level of 0.5%-0.75% (compared to previous 0.25%-0.5%). Markets have immediately reacted to this. All major currencies and oil prices dropped against the dollar, but today the situation has balanced. The chief economist at PF Capital Evgeny Nadorshin discussed the impact of new US Federal Reserve interest rate on world finances in an interview with Vestnik Kavkaza.
- What are the reasons for this raise?
- There are several reasons. The main among them - a noticeable revival of the US economy and decent rates of economic growth. According to recent estimates, they exceeded 3%, which can be considered very high growth rates for the economy of such size. Another reason is a threat of increasing inflationary pressure. Although current inflation in the US is not so high, wages are rising quite rapidly, unemployment level has dropped impressively, it can make inflation raise even faster. Basically, Federal Reserve stated this, improving the forecast on dynamics of consumer prices and economic growth rates, and then raised the interest rate.
- Does Federal Reserve take into account impact of such decisions on the world markets?
- It almost doesn't take it into account (there are some exceptions, of course, but they are rare). But it's not Federal Reserve's job to worry about Russian market or market of any other country. As a national regulator it is interested in, above all, the situation in the US economy. That is why it can be expected that it took into account discomfort of some markets from this decision, but shouldn't be expected something will be changed because of it.
- How will it affect the ruble?
- Dollar grew by more than a ruble, compared to the best rates of past few days, it was at the level of more than 62 rubles at the peak. The situation has slightly bounced right now, but I'm not sure that it will last. As I see it, lower ruble rate against the dollar is more justified, even considering raised interest rate. I would like to remind you that it was known in advance that this will happen, many expected that the rate will be raised, but judging by the market reaction few people expected better forecast.
- Will this decision have a significant impact on oil prices, which grew in recent days after oil exporters agreed to cut oil production?
- We are already seeing a downturn trend, so we must closely monitor markets' behavior. Overall, expectations of interest rate change will affect oil price, not its growth to a specific level. US Federal Reserve published a forecast in which it expects three rate increases next year, compared to two in the previous forecast. The market already considers this when determining the prices. This didn't happen in 2015 and 2016, as well as in previous forecasts for 2017. It will definitely have a negative impact on oil prices, although it won't be the only factor. It's not guaranteed that the agreement between OPEC and non-OPEC countries on production cut will be implemented even in the first half of 2017. So future behavior of the oil market remains ambiguous. Personally, I believe that oil will continue to drop from the current levels.
- What can we expect from promised three rate increases in 2017?
- If those will be fully expected events they will have weak impact on the situation: if markets will make correct adjustments based on these expectations, there won't be any problems. However, if Federal Reserve will somehow surprise the market, like it did today, it will cause a corresponding reaction, which can be negative, then there will be a drop in oil prices and ruble rate, or positive. Based on previous statements of the Federal Reserve officials, I believe that it can be expected that interest rate increases will have much more negative surprises for us than positive.
At the same time, we should not forget that the fact that US Federal Reserve raised interest rate is not a bad thing, it is associated with the fact that the US economy is in a pretty good position, and that's exactly what it needs right now. As for the Russian economy, which still can't begin to grow, any factor that affects oil prices negatively can become an obstacle to its growth in 2017. So the absence of our own economic development strategy we depend on what the Federal Reserve does, on OPEC agreements, on what will happen in China, for example, and so on. The fact that without a consistent economic policy we are so dependant on world trends is a big problem. And we shouldn't try to find problems and reasons for them outside of Russia: if we understand that some process may have a negative impact on the Russian economy, we must take measures that will smooth out this impact on our market.
So if we will have any problems because the US Federal Reserve raised its interest rate, first of all, it is necessary to address our sluggish and inconsistent economic policy, which puts us under these external shocks. I don't think that the Federal Reserve raises interest rate to damage someone's economy, they are not interested in this at all.