Causes of Russia's ultra-low inflation revealed
Russia's Ministry of Economic Development published a monitoring survey entitled 'The picture of lending'. According to which, the total loan offer remains low (4% of GDP over the past 12 months), and banks have responded to a reduction in nominal interest rates with restraint. Maintaining current levels of lending rates determines low demand and inflation below 3% in the first half of next year, according to the Ministry of Economic Development's report.
The ministry explains the banks' restrained reaction to the reduction in nominal interest rates with "an increase in the level of real rates against the beginning of the year."
According to the Ministry of Economic Development, maintaining the current level of interest rates on bank loan products "predetermines maintaining a low level of aggregate demand and a stable inflation rate below 3% in the first half of next year."
The vice-rector of the Academy of Labour and Social Relations Alexander Safonov, speaking to Vestnik Kavkaza earlier, noted that the slowdown in inflation is mainly caused by low consumer demand, which is determined, inter alia, by stagnant incomes of Russians.
"Revenues from financial assets are reduced because the Central Bank lowers the key rate, due to which banks lower their deposit rates. Another problem is that the social protection system does not present a sufficient level of income for the most vulnerable citizens," Alexander Safonov noted.
The vice-rector of the Academy of Labour and Social Relations stressed that the government has tools to ensure the growth of incomes of Russians. "One of these tools is the growth of the minimum wage. The second direction is the introduction of a progressive income tax," the economist said.