Central Bank promises Russians easy long money
Inflation dynamics enables the Russian Central Bank to cut further its key rate, the regulator’s First Deputy Chief Ksenia Yudaeva said.
"Obviously, the current inflation dynamics allows a reduction," TASS cited her as saying.
According to her, the Central Bank’s May inflation outlook coincide with Rosstat’s expectations.
"Indeed, annual inflation will remain low due to last year’s high inflation effects regarding fruits and vegetables," Yudaeva said, adding that inflation will "accelerate starting Q3."
The next meeting of the Board of Directors of the Russian Central Bank in 2018 is scheduled for June 15. The key rate is 7.25% per annum.
The advisor on macroeconomics to the CEO of the 'Opening-Broker' brokerage house, economist Sergey Hestanov, speaking to a correspondent of Vestnik Kavkaza, noted that the Russian Central Bank will continue to cut the key rate by 0.25% with long pauses in order not to disperse inflation. "By the end of the year, most likely, we will see a level of 6%-7%," he explained.
The economist stressed that Russian business will be able to access easy long money only when the key rate approaches the inflation rate, but the Central Bank's actions alone will not be enough for this. "A lot depends on the level of business profitability and inflation. When the key rate is close to inflation, this means the availability of loans. But now this factor is secondary in Russia, because the cost of servicing deposits in many banks is below the key rate, that is, the money of the Central Bank is more expensive, than the money of commercial banks. In such circumstances, the key rate does not affect economic activity," Sergei Hestanov pointed out.
"The main reason why easy long money is reluctant to go into the real sector is not the key rate, but the fact that in the real sector of economy has a very low level of profitability and rather high risks at the same time. Until the economy turns to growth, the key rate has no substantial impact on lending," the advisor on macroeconomics to the CEO of the 'Opening-Broker' brokerage house warned.
The professor at the department of the stock market and investments at the Higher School of Economics, Alexander Abramov, said that the Russian Central Bank has broad opportunities to reduce the key rate. "The risk of accelerated inflation is quite limited now. So the Central Bank can continue cutting the key rate, and I think that in a week it will cut it by 0.25% one more time, because this will enable the Central Bank to demonstrate its readiness to make loans less costly, but practically does not affect inflationary risks," he predicts.
Alexander Abramov noted that easy long money needed by business starts at a key interest rate of 4%.
At the same time, the professor at the department of the stock market and investments at the Higher School of Economics underlined that easy long money, first of all, require trusted financial institutions. "Now the confidence in the banking system is based on state guarantees for the safety of deposits - if the state does not guarantee that money are safe, people will simply leave banks," Alexander Abramov concluded.