On November 1, a round table discussion "Negative rates. Prospects for their introduction in Russia” took place organized by Club of Banking Analysts and Macroeconomists in conjunction with IEP and the RANEPA Institute for Applied Economic Research (IPEA).
During the meeting, economists and analysts discussed consequences of introducing negative interest rates at the international market as well as prospects for their introduction in Russia. Opening the meeting, Maxim Osadchiy, Member of the Board of Directors, LLC Bank CFB, reminded that the current rate of European Central Bank (ECB) is equal to -0.5% while rates of Swiss and Danish National banks reached -0.75%. The Bank of Japan set the rate at -0.1%. Osadchiy noted: “FRS has not taken this path yet. However, Trump made explicit statements on the intention to reach lower rates. This is a form of war and even higher relaxation of monetary policy is not excluded in this war, dollar can also enter this zone”.

Alexey Vedev, Leading Researcher, Department of Financial Studies of the Gaidar Institute, moderated the first hour of the discussion. Expert said in his opening address that Russia is also switching to a new paradigm: thus, economic situation is changing since 2015, inflation is no more a threat, now we should rather talk about deflation. “Negative interest rates are a new phenomenon in our monetary policy,” economist said. At one time, it was the reduction of inflation and the issue of excess liquidity that forced central banks of developed countries to introduce this measure of monetary policy.

Participants of the meeting were unanimous in general in their opinion that introduction of negative rates is quite likely. However, it relates to Euro accounts and only for corporate clients. Currently, Russian legislation does not allow banks to introduce negative rates because they conduct negotiations with Central Bank on their introduction for legal entities. Oleg Zamulin, Director, Centre of Macroeconomic research of Sberbank, Professor of NRU HSE, stated: ”Is it required to allow introduction of negative rates in Russia? Definitely, yes, on Euro deposits”. According to speaker, it is strange that Euro rates are negative in Europe while they are positive in Russia. It provides obvious opportunities for arbitration.
Nevertheless, individuals should not worry as introduction of negative rates on their deposits is hardly possible. According to Armen Dallakyan, АКРА Managing Director, Head of financial institutions rating group, when market rates become negative banks do not dare to apply negative rates towards  accounts of individuals, so that to avoid outflow of clients deposits. Deposits of individuals represent a core business of the bank, major part of their passives. As a result, bank net interest incomes decrease and this is one of the main sources of income for credit organizations.

Oleg Shibanov, Director of Centre for research in financial technologies and digital economy “SKOLKOVO -NES”, stated that when negative rates are introduced in Russia, people will simply go for cash. 

Compared to corporate clients, individuals can keep their savings at their will and comfort. Oleg Shibanov pointed out: ”Research proved that 75% of respondents in several developed economies are prepared to switch to cash if they are offered negative deposit rates. I assume that 75% will quickly turn into 120% in Russian reality”. All speakers were of the same opinion.

Experts were also unanimous in their opinion that introduction of negative rates on Ruble instruments is rather unlikely in Russia: more likely, their reduction is expected and it will not be very sharp. However, introduction of negative rates even on currency deposits bear certain risks. Firstly, global experience of this tool is limited and conclusions regarding its efficiency is not obvious so far. According to Prof. Konstantin Korischenko, Head of the Department, RANEPA Finance and Banking Faculty, negative rates were introduced “temporary and shortly” everywhere.

He focused on growth of cash in the turnover, which takes place parallel to development of electronic payments.  Alexey Kudrin, Co-founder of GKEM Analytica, added that other consequences of introduction may include: transition to digital currencies, problems of pension system, transformation (or even attenuation) of banking system and changes in banking business. Negative rates at the economic level will be disastrous for Russian banking sector due to pressure on capital. According to Kudrin, necessity to recapitalize banks will create strain on budget. He said: “Fr om the point of capital adequacy, everything is not too fine with us ... And this is disturbing”.

In addition, according to Kudrin, risk is accumulating among conservative investors because they are shifting to the area where they have never been before and wh ere they fail to understand real risks. For example, if a conservative investor - a pension fund - bought securities of German Government, it is unlikely that he will buy these securities further at negative rates. An investor will have to start buying corporate bonds having no adequate expertise.

Kudrin explained: “As a result, investor undertakes higher risks which he is not able to control properly. This creates a big problem”. Oleg Shibanov thinks that households respond to a decrease in rates at the public debt market practically in the same way. According to Shibanov: “Studies show that the lower the interest rates on risk-free assets, the greater the proportion that households invest in risky assets. And this is a serious risk”.

Finally, negative rates being a motivation measure of economic growth also raise questions. Oleg Zamulin said: “This is kind of a penalty for commercial banks who keep their reserves at the Central Bank deposits. Negative rates should motivate them to grant more loans, invest in the economic development”. However, a reverse reaction may happen: as difference between rates on loans and deposits go down, banks prefer to disburse less loans and it becomes more challenging to fulfil requirements on the capital adequacy due to reduction of profit. Oleg Zamulin said: “It reminds pressure on the leash. We provide banks with this opportunity, i.e. to grant loans to corporate clients but do not oblige them”.


Oleg Zamulin. Negative rates: global experience
Armen Dallakyan. Impact of negative rates on financial institutions
Oleg Shibanov. Negative rates, macro and micro consequences and financial markets
Konstantin Korischenko. Negative rates. Reasons and consequences
Aleksey Kudrin. Impact of negative interest rates on financial markets