The penultimate gift of the Central Bank
4,25 percent per annum. Only in the Central Bank and only for banks. And all the same! Modern Russia did not know such lending rates, although affordable credit was the norm both before the revolutions of 1917 and in Soviet times.
It would seem that the decisiveness of the Bank of Russia management, confidently following the course towards the maximum possible easing of the monetary policy, can only be welcomed. But let's try to figure out who benefits and who harms the long-awaited financial stability today. Complete financial freedom in Russia has never been, and never will be. And this is absolutely correct: the 90s convincingly proved that only criminals need it.
However, it is not only the crisis situation in the real sector of the economy that can now prevent definitively getting rid of some kind of inflationary pad in the form of a rate slightly higher than official inflation. After all, the financial sector is also teetering on the brink of survival, since in the current conditions it has sharply limited opportunities to use any profitable instruments.
It's no secret that the demand for money in Russia has fallen due to quarantine so much that even negative credit rates will hardly stimulate it. However, by definition, things cannot reach such extremes in Russia. As the classic says: "This cannot be, because this can never be."
But that's not the point. Entrepreneurs do not go for loans not because of interest, but because today very few people expect to return even the borrowed funds themselves. Nevertheless, in the business environment and in the business media, they are seriously discussing not only the summer reduction in the key rate to 4,25 percent, but also the autumn perspective of 4 percent per annum - as quite real and even necessary.
However, such calculations are still the lot of optimists. Practitioners are inclined to believe that the current conditions will remain at least until the end of the year, and the Bank of Russia can postpone its latest rate cut indefinitely.
Moreover, the decline that the Central Bank made on Friday was taken into account ahead of time by many banks. So, just a week before the meeting of the Board of Directors of the Bank of Russia, sixteen banks from the top-100 list promptly reduced lending rates, some of them by 1,5 percentage points at once.
At the same time, the conditions for saving funds in credit institutions became less attractive. Moreover, this happened ahead of the curve, which confirms the fact that the banking community did not doubt what decision the Board of Directors of the Central Bank would make on Friday. So, according to the monitoring carried out by the Central Bank of the Russian Federation, the average maximum rate on deposits of the 10 largest banks in the second decade of July dropped to 4,55%, whereas at the beginning of this month it was 4,63%.
It is characteristic that the incentive for such decisions on loans and deposits, most likely, was not competition at all, but the softening of the conditions for access to loans of banks closest to the Central Bank, that is, from the top ten. There are analysts who immediately began to sarcastically about this: they say, money is making money again, but today the trend itself is important.
For many years, the gap in the level of interest rates, loans and deposits, allowed Russian banks to exist very comfortably, even without access to foreign capital. As you know, capital is traditionally much cheaper than Russian capital. But now we can only dream of these greenhouse conditions.
With the level of interest rates on deposits, which develops after the next decrease in the Central Bank's rate, one cannot exclude an outflow of client funds. Investors - the public is already very sensitive, they can again run into dollars. And this almost guarantees a strong pressure on the ruble and refutes all forecasts about its possible strengthening.
The real effect of the key rate cut, which is clearly hindered by growing insurance and risk premiums by leaps and bounds, will most likely be seen only in the least risky sectors of the market. That is, in the raw materials or in those that are directly tied to government orders, such as the lion's share of the construction sector.
The crisis was not ordered
In general, the Bank of Russia makes it quite unambiguous that no one will be allowed to sit on the purchase and sale of currency and passive operations with the instruments of the Central Bank itself indefinitely. It is no coincidence that one of the deputy heads of the Central Bank Elvira Nabiullina, who commented on the results of the Friday meeting of the Board of Directors, said: "If you want profits, look for clients."
The pandemic has made literally everyone worried about their currencies, and Russia is no exception. Although the Central Bank of the Russian Federation has not yet had to launch the printing press seriously, unlike the IMF and the ECB. However, let's not forget that these gentlemen will always find where to attach surplus paper and electronic money, but in our country rubles are not too much in demand even from our neighbors - the EAEU.
But even without the ruble emission, one of the most unpleasant surprises at the exit from quarantine and self-isolation was the second wave of the ruble depreciation. The majority of experts, and it does not matter whether they adhere to liberal beliefs or have signed up to "catastrophists", continues to insist that the ruble will certainly win back in the fall.
Over the course of three months of complete quarantine, the ruble very rarely lost track of, and, although it did not add often either, it still strengthened compared to the March indicators. The ever lower rate of the Central Bank should in any case help to ensure that it does not fall at least much. However, for real strengthening, other factors are needed, and above all, growing foreign exchange earnings.
July inflation turned out to be higher than expected - just 0,4%, which in annual terms gives almost 5 percent. This is what could have slowed down the adoption of the last decision on the rate, but, as we see, the members of the Board of Directors of the Central Bank are not shy people. In addition, they could well have been reassured by the data on the growth rate of retail lending. In June they accounted for 1% MoM, which is significantly higher than forecasted and confirms that business activity is recovering faster than expected.
One can treat differently the current rather controversial policy of narrowing the money supply in order to reduce the cost of credit. One can also complain that deposits are becoming less and less profitable. But if citizens and businesses get a rare opportunity to reduce interest rates on loans, this will give an additional synergistic effect.
Thanks to the reduction in the debt burden, the state and business have good chances of freeing up resources, and considerable ones, for consumption and investment. At the same time, a more affordable mortgage in any scenario, even the most critical one, will stimulate construction and help accelerate the recovery from the economic downturn.
The Bank of Russia, together with the Ministry of Finance, we cannot but give them their due, have managed to minimize the unsecured cash infusion into the economy. Now, by all indications, they are simply trying to competently take advantage of the low base effect.
And the situation contributes to this: it is still developing in such a way when the obligatory warming up of the economy after the crisis began to very quickly adsorb all surplus funds that appear in circulation. Someone may consider this a paradox, but in Russia after the pandemic, it seems that the notorious "effective" Keynesian demand is being formed.
Recall that the British economist Lord John Maynard Keynes, better known as the founder of the post-war dollar financial system, the Bretton Woods, was closely involved in the problems of demand. And the paradox is that the main demand comes from entrepreneurs and banks, and not from the end consumer. Although he, an ordinary consumer, for all his poverty, having come out of quarantine, is simply forced to not skimp on expenses.