ALEKSEY VEDEV: A NUMBER OF SYSTEMIC ISSUES IS ASSOCIATED WITH ACTIVITIES OF THE CENTRAL BANK
Aleksey Vedev, Doctor of economics, Head of Financial Studies Department of the Gaidar Institute, Ex-Deputy Minister of economic development, expressed his comments to Gazeta.ru due to criticism against Central Bank of the Russian Federation.
The Central Bank is a mega regulator of the Russian financial market and it is regularly criticized by colleagues from other institutions as well as by business community. Taking into consideration the nature of the Central Bank activities, it is not surprising that their decisions may not satisfy someone, however, when too many people become discontented, this, probably, is an alarming sign indicating need for changes. Aleksey Vedev is confident that a number of systemic issues is associated with activities of the Central Bank.
“It is obvious that systemic questions do exist for the Central Bank. Firstly, a neutral real interest rate: for some reason, the Central Bank decided that it should be set at 4.5% per annum. It is very high. Moreover, such a decision was made without a public academic debate, which, of course, is a disadvantage. This is a hi priority issue. Since we wish to boost economic growth and the report by Belousov presented in early February clearly indicated monetary easing and certain promotion policy by all means contravenes the policy of high interest rates carried out by the Central Bank,” noted expert.
Secondly, according to expert, there is a systemic challenge due to population high debt ratio accompanied by stagnation in granting credits to legal entities, i.e. non-financial institutions.
Aleksey Vedev concluded: “Thirdly, I think that the fact that the Central Bank does not take responsibility for economic growth, presents a systemic issue. Although the discussion is going on about this issue, however, I guess that the regulator should not deny its role. If we take into consideration the forecast published by the Central Bank in September 2019, it presents a clear view that it practically does not believe in the possibility to implement the Presidential Executive Order with regard to economic growth. Actually, this Executive Order does not exist for the regulator and being independent the Central Bank releases hopelessly pessimistic figures. Probably, it can do this but it leads to the total repudiation of any stimulating measures on the part of the Central Bank. They continue to repeat like mantra that they target inflation and do not care about other issues. I think that such a position is unacceptable.”
“It is obvious that systemic questions do exist for the Central Bank. Firstly, a neutral real interest rate: for some reason, the Central Bank decided that it should be set at 4.5% per annum. It is very high. Moreover, such a decision was made without a public academic debate, which, of course, is a disadvantage. This is a hi priority issue. Since we wish to boost economic growth and the report by Belousov presented in early February clearly indicated monetary easing and certain promotion policy by all means contravenes the policy of high interest rates carried out by the Central Bank,” noted expert.
Secondly, according to expert, there is a systemic challenge due to population high debt ratio accompanied by stagnation in granting credits to legal entities, i.e. non-financial institutions.
Aleksey Vedev concluded: “Thirdly, I think that the fact that the Central Bank does not take responsibility for economic growth, presents a systemic issue. Although the discussion is going on about this issue, however, I guess that the regulator should not deny its role. If we take into consideration the forecast published by the Central Bank in September 2019, it presents a clear view that it practically does not believe in the possibility to implement the Presidential Executive Order with regard to economic growth. Actually, this Executive Order does not exist for the regulator and being independent the Central Bank releases hopelessly pessimistic figures. Probably, it can do this but it leads to the total repudiation of any stimulating measures on the part of the Central Bank. They continue to repeat like mantra that they target inflation and do not care about other issues. I think that such a position is unacceptable.”