On April 3, a press-conference was held at the Rossia Segodnya International Information Agency, where a new issue of the Online monitoring of Russia’s Economic Outlook prepared by experts of the Gaidar Institute, the RANEPA and the Russian Foreign Trade Academy was presented.

The discussion was opened by Pavel Trunin, Director of the Center for Macroeconomics and Finance, Leading Researcher of the Center for Studies of Central Banks’ Policies, RANEPA who told about the factors behind the soft monetary policy of the Central Bank of Russia. “The main factor is an accelerated decline in the rate of inflation. If last year the Central Bank of Russia forecasted a decline in the rate of inflation to 4.5% only by October 2017, in reality it actually fell to 4.6% as early as February”, Pavel Trunin noted.


According to Pavel Trunin, slowdown of the rate of inflation was driven by low recovery rates of composite demand and appreciation of the rouble over the past four months. “During the latest recession, households’ incomes were falling for an unprecedentedly long period. If in January incomes increased owing to a non-recurrent indexation of pensions, in February incomes decreased again. It means that the downward income trend has not been overturned yet and this factor is containing prices”, Pavel Trunin specified.

Pavel Trunin explained why consumer prices do not go down following appreciation of the rouble. “The effect of conversion of the exchange rate of the national currency is asymmetric. When the national currency depreciates, the exchange rate effect is fully converted into prices. It can be explained by the fact that in contracts on future supplies importers set a higher exchange rate to protect themselves from foreign exchange risks, while appreciation of the national currency has a smaller effect on prices. So, the inflation rate shock of 2014–2015 was caused by foreign currency appreciation and price rises, while a reversal is not usually that prompt and complete”, Pavel Trunin explained.

A new issue of the Online Monitoring of Russia’s Economic Outlook was presented at the Rossia Segodnya International Information Agency. The expert outlined a number of factors behind the prudent monetary policy of the Central Bank of Russia. “The Central Bank makes assets attractive through interest rates. When interest rates are higher than in developing countries, it is more advantageous for investors to invest in Russian assets, so there is a capital inflow to the country and prices do not go up. However, in case of a dramatic drop in oil prices, the Central Bank is unable to contain appreciation of prices. So, there are plenty of factors in place to influence oil prices in the mid-term prospect”, the speaker said.

In addition, the Central Bank takes into account the fiscal policy factor. “Before the elections, the fiscal policy is usually moderate and this factor should be accounted for. In addition, novelties of the Ministry of Finance as regards raising of VAT rates, introduction of a sales tax and using of a tax maneuver which may lead to higher prices of petrol have been widely discussed of late. Growth in the VAT rates from 18% to 22% will directly influence the growth rates of inflation. The Ministry of Finance believes that only 2% will be converted into the inflation rate, but in reality the conversion into prices will amount to 4% which means twofold growth in the inflation rate target level. With this in mind, the Central Bank is carrying out a prudent policy: economic agents will not understand if the Central Bank reduces the interest rate at first and then increases it”, Pavel Trunin said.

Also, Pavel Trunin explained that the Central Bank set the goal of retaining the rate of inflation at the level of 4% for a long period and not for a month or two. It is to be noted that economic agents’ inflationary expectations play an important role in it.

In his turn, Mikhail Khromov, Head of the Department of Financial Studies, the Gaidar Institute spoke about trends in the banking sector. In particular, Mikhail Khromov pointed out that foreign currency account balances both of individuals and corporate customers decreased.
A new issue of the Online Monitoring of Russia’s Economic Outlook was presented at the Rossia Segodnya International Information Agency.

“At present, individuals’ foreign currency account balances make up 22%-24% of the total volume of deposits. But the nominal volume of individuals’ foreign currency account balances remains high (slightly over $90bn). This record-high value was achieved early in 2014 and did not change much in the past three years,” Mikhail Khromov said.

“A decrease in the share of foreign currency deposits is driven by appreciation of the rouble: the stronger the rouble, the lower the unit weight of foreign currency. Also, the influx of rouble deposits renewed. Depositors take less interest in foreign currency after the Central Bank started to carry out a free floating exchange rate policy and foreign currency’s value became highly volatile”, Mikhail Khromov explained.

Switching over to the topic of companies’ accrued capital, Mikhail Khromov pointed out that legal entities’ term deposits stopped growing; this positive trend was observed in 2016 and during the first few months of 2017.

“A decrease in the volume of funds placed by corporate customers on deposits can be explained by growth in economic activities. If large volumes of funds are placed by entities on bank deposits, it means that there are no attractive investments to be made in real production. In general, as of the beginning of 2017 corporate customers placed over Rb 12 trillion on term deposits.” Mikhail Khromov stressed.

Taking into account the fact that investment attractiveness of bank deposits is gradually declining following the appreciation of the rouble and a fall in interest rates, those funds can be actively used to spur investments in capital assets in 2017, Mikhail Khromov concludes.

Video recording of the press conference