Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting on 17 March 2023
Good afternoon,
Today, we have decided to keep the key rate at 7.50% per annum.
Economic activity continues to expand. Inflation trends remain moderate. Households’ inflation expectations have decreased significantly, while staying elevated. External conditions have worsened somewhat. Overall, risks are still shifted towards proinflationary ones. Therefore, as before, we believe that the key rate is more likely to be raised rather than cut this year.
I would now dwell on the reasons behind our decision.
Firstly, price growth remains moderate.
Average monthly price growth rates have increased compared to the end of last year, coming close to 4%, in annualised terms.
The acceleration of price growth in January and its further slowdown in February were largely caused by one-off factors. This was especially notable in prices for electronics, construction materials, furniture, and some food products. Nevertheless, the growth rate of stable components of inflation currently stays moderate.
In contrast, prices for services have been rising considerably faster since June 2022, compared to prices for products. The accelerated increase in prices for services is often interpreted as a sign of strengthening inflationary pressure in the economy that requires a monetary policy response. This is associated with the fact that these prices are less sensitive to exchange rate movements and one-off factors in certain markets and are revised less frequently than prices for products. However, at the moment, it would be premature to draw an unambiguous conclusion that the quick rise in prices for services implies persistent inflationary pressure. The current increase in prices for services is attributed to two components. In the first place, there is indeed a stable component. It is associated with changes in wages as labour costs account for the largest percentage of the production cost of services. However, the second component is catch-up growth. Beginning from the middle of last year, we have been observing the adjustment of prices for services after the pandemic and the surge in prices for products that occurred last spring. At the moment, it would be difficult to estimate the proportions of these two components in the current growth of prices for services. The adjustment will end gradually, and the growth rate of prices for services will largely depend on steady factors. We will closely analyse the data received in this regard.
Households’ inflation expectations considerably decreased in March. Respondents note a slowdown in inflation. Besides, they have become more optimistic about the future economic situation in the country and their personal finance prospects. Nevertheless, inflation expectations of both households and businesses are persistently elevated overall.
Secondly, economic activity continues to trend upwards.
The actual changes in GDP over 2022 turned out to be more positive than we expected. Public demand was an important factor that supported economic activity last year.
At the beginning of this year, business activity continued to increase, according to high-frequency indicators, including the Bank of Russia’s Business Climate Index. We have been observing notable improvements in some manufacturing sectors, construction, transportation, and trade.
Businesses continue to adjust to the changed environment. Of course, there are still certain difficulties with supplies of equipment and components. However, our regional branches generally report that many companies have refocused on alternatives or switched to parallel imports of investment goods. Segments focusing on domestic demand are developing. Thus, auto manufacturers in a number of regions are now increasing the utilisation rates of their production capacities after a pause. Textile enterprises in the Central Federal District are launching their in-house apparel brands taking the niches that became vacant. Manufacturers of paper and paper products in the North-Western Federal District have managed to redirect their supplies from the external markets to the domestic one and expand the range of their products. More details about the adaptation of different industries can be found in the March issue of our Regional Economy report.
The elimination of infrastructure and logistics bottlenecks progresses: there are new warehouse complexes, terminals, and transportation routes being created. These projects are greatly supported by government investment.
The recovery of business activity influences the labour market as well. Real wages continue to rise across a large number of industries, while unemployment is at its record lows. Companies continue to abandon part-time employment schemes, and the demand for workers of a wide range of professions is growing.
Consumer activity remains subdued. We expect it to expand gradually. This will be driven by three factors. First of all, this is a decline in the propensity to save. Currently, people still prefer to make savings due to the precautionary motive that appeared because of rising uncertainty last year. They continue to form safety cushions thus feeling more confident. As overall uncertainty goes down and people accumulate a certain comfortable amount of savings, their propensity to make additional savings might decrease. The second driver of consumer demand will be growth in wages and incomes. Third, households will gradually get used to the new range of products. It is restoring stage by stage, and companies are creating new brands replacing those that exited the Russian market. However, consumers are still reluctant to switch to them. A specific feature of this is that the demand for repairs of equipment and clothing has risen. In other words, people probably prefer to prolong the service life of the products they have got used to, rather than purchase new items, as they did previously. Nevertheless, they will sooner or later need to buy new equipment and other items.
We expect that external demand will be substituted for domestic demand to an increasingly greater extent, which will be driven not only by the public sector, but also by the rebound in consumer activity. We will assess how the expansion of demand will correlate with the capacities to ramp up the output of goods and services.
Thirdly, Monetary conditions.
Monetary conditions have generally remained the same, staying neutral. Since our February meeting, yields on federal government bonds, as well as credit and deposit rates have changed only slightly.
Credit to the economy continues to expand. Growth rates in corporate lending remain high. A slight decline at the beginning of the year was caused by the extensive advanced funding of budgetary expenditures. They partially replaced companies’ needs for short-term borrowings.
Retail lending growth is moderate, while individual segments demonstrate diverse trends. Specifically, mortgage lending continues to expand fast. Growth in consumer lending is slower, which is largely explained by borrowers’ and creditors’ cautious behaviour, as well as the effect of the macroprudential measures taken.
Although bank loans remain the major source of money supply growth, the budget is becoming increasingly more important. In addition, the significant increase in ruble money supply is associated with the expansion of the demand for money and changes in the demand structure. A lengthening of payment chains and higher prices are increasing working capital needs. As external liabilities are substituted for Russian banks’ loans, this process is also creating an additional demand for money. Hence, although the growth rate of ruble money supply is at a historically high level, it generally correlates with monetary neutrality.
Now, I would like to speak of external conditions.
Since our February meeting, they have slightly worsened. In particular, there are new restrictions on Russia’s external trade that became effective. On the other hand, the removal of transport infrastructure bottlenecks progresses, and there are new routes arranged for delivering exported and imported goods. Import quantities that surged in the second half of last year remain relatively stable. However, there are persistent difficulties with the sale of exports. As compared to both 2021 and 2022, export quantities are still lower.
The lifting of anti-pandemic restrictions in China will have a positive effect on the world economy. For the Russian economy, this can mean more active mutual trade and new opportunities for exports and imports. This can also be an additional driver for the tourism industry.
Assessing the external conditions, I should definitely comment on the current situation in the US and European banking systems. It has no direct effect on the Russian financial system. However, this new factor itself is increasing uncertainty about the future path of the world economy. For the Western central banks, the current situation exacerbates the problem of finding a balance between monetary policy objectives and financial stability risks. On the one hand, we can see that the financial sector is vulnerable to interest rate risk and other risks. On the other hand, current inflationary pressure is persistently elevated. Combined, these circumstances might aggravate the risks of a recession in the world economy, despite the positive data that we have seen recently. For Russia, a slowdown in the world economy would involve a contraction of the demand for our exports, which might entail additional proinflationary pressure.
I will now speak of the main risks to inflation.
Our assessment of the ratio between proinflationary and disinflationary risks has remained almost the same. All the factors that we focused on in February are still relevant.
First of all, this is the path of budgetary expenditures. We perceive their growth at the beginning of the year as their redistribution within the year. In the current conditions, budgetary expenditures offset the contraction in the private sector’s demand. Further on, we will consider a deviation from the announced path of fiscal policy normalisation as a proinflationary factor.
Second, this is the labour market. Staff shortages might become more acute. Migrant flows might cover labour demand to a certain extent. However, even in this case, there are still material risks that labour productivity will rise more slowly than real wages.
The third risk is consumer demand trends. Households might shift from savings towards higher consumption faster and more sharply than we expect. In this case, demand might expand more quickly than supply, even considering the debottlenecking that we are currently observing.
Finally, the sanctions might be tightened further. If the demand for exports contracts, this might weaken the ruble, which will then pass through to prices. More complicated logistics and settlements in trade or other constraints might also push up prices for imports and reduce the opportunities to increase supply.
I will now speak about our future decisions.
Inflation trends are generally in line with our forecast of
The range of the average key rate for this year is
We will make our future decisions on the key rate considering the need to return inflation to the target in 2024 and stabilise it close to 4% further on.
Thank you for attention.
Q&A for the Media
QUESTION from Interfax:
Did you consider any alternatives today, other than keeping the key rate unchanged? Did you discuss possible changes in the wording of your signal? Did you intend to give any signal to the market by releasing the data on a significant decrease in inflation expectations before the Board of Directors’ meeting?
And another question, please. How do you estimate a potential easing of the capital controls, namely as regards dividend payouts from
ELVIRA NABIULLINA:
We considered two alternatives, specifically keeping the key rate unchanged and its possible increase, but the consensus decision was to maintain the key rate at its current level.
We also discussed the signal as usual. However, we believe that the ratio of risks has not changed and, therefore, we decided that the signal should remain the same. Actually, this means that the key rate is more likely to be raised rather than cut this year.
Speaking of the signal through the publication on inflation expectations, as you know, we release data on inflation expectations as soon as we receive this information, even though this is a quiet period, and we announced this decision some time before for the market to have exactly the same data as we have at the moment when we make our decision. We did not expect that this information would have any special signal effect, but we certainly took into account this factor.
As to an easing of the controls with regard to dividends, we support the suggestion to allow payouts of dividends from investments made later than March 2022.
We do not see any risks to volatility or inflation in this connection, but we believe that this will improve investment prospects and increase investors’ confidence encouraging investment in the Russian economy. Today, the economy needs investment. In my opinion, this is a totally reasonable and adequate decision.
QUESTION from Rossiyskaya Gazeta:
You have mentioned that banks’ turbulence in the US and Swiss markets does not have a direct effect on the Russian financial system.
Nevertheless, has that situation affected your today’s decision, except that it is an additional proinflationary factor?
If the crisis there becomes more severe in the future, what will be the channel of its impact on the Russian financial system? Will it be, let’s say, only the possibility of a decrease in oil prices or any monetary factors, high inflation rates in these countries?
And question two, if I may. Do you support the opinion of some analysts that speculative traders have shaken up the ruble exchange rate since the beginning of 2023? Can you see any abnormal movements, possibly?
I would also like to ask you a question about the digital ruble. Why has the adoption of the law on the digital ruble been accelerated at the moment as it might cause an outflow of liquidity from the banking system?
ELVIRA NABIULLINA:
Speaking of banks’ turbulence and its impact on our decision, of course, we took into account this factor. All else being equal, this might become an additional proinflationary risk. This is exactly what we write in our publications, but on the other hand, we can see a certain reduction, if it is possible to say so, in proinflationary risks caused by inflation expectations. We can see a notable decrease in inflation expectations, although they are persistently elevated and exceed the level that basically correlates with our target of 4%. Current inflation remains moderate as well.
Overall, we can see that the ratio of proinflationary and disinflationary risks has remained the same, although the situation in the external market can be considered an additional proinflationary risk.
Nevertheless, the main channel of influence is indeed the demand for Russian exports, which is derived, so to say, from the growth rate of the world economy.
We believe that risks to the financial sector and direct adverse consequences for the financial sector are minor, which is because the Russian financial system is interconnected with the global financial system to a lesser extent. Probably, these are the key aspects.
There might certainly be indirect monetary factors impacting the system through a persistently high level of global inflation in countries, global prices, and export parity prices of Russian goods, that is, there might be such impact.
Would you like to add anything about additional monetary factors, Mr Zabotkin?
ALEXEY ZABOTKIN:
Probably, it is worth reiterating that we should not speak of the oil price as the only channel of the impact of the world economy. We should view this more comprehensively as changes in trade terms.
Of course, if the world economy slows down as a result of a tightening of monetary or financial conditions and this turbulence in the US and European banking systems, it would rather be a proinflationary risk for Russia as this always happens when the export situation worsens for the country. This is true for all commodities, as well as their quantities that will be purchased from Russia in these conditions.
However, the situation over the medium-term horizon will, of course, largely depend on how timely the measures taken will be and whether they will be proportionate considering the circumstances. Another important aspect is the combination of response measures chosen by foreign regulators, including financial stability measures, key rate and monetary policy measures.
ELVIRA NABIULLINA:
As regards the situation in the foreign exchange market, we do not see any, so to say, speculative actions there, but the exchange rate was really fluctuating, especially in the middle of March. This was associated with the concentration of open positions before the expiration of futures contracts on the exchange.
Technically, such price fluctuations are possible amid a decrease in the liquidity of the foreign exchange market. Currently, jointly with the exchange, we are considering whether it is worth improving the design of trading so as to expand the period for calculating the fixing in order to neutralise such fluctuations. Although this is a normal market practice, we nonetheless will check this attentively for manipulation, just as we examine any abnormal behaviour in the market.
Speaking of the allegedly faster consideration of the draft law on the digital ruble, it has not been accelerated in any way — this process progresses as planned. The testing, experiments, and pilot testing are all according to the schedule. We can see positive effects as a result of the issue of the digital ruble.
Certain concerns of banks about problems with liquidity have been discussed in detail during several months. We do not see such risks and, therefore, we will progress as planned.
QUESTION from Drug dlya Druga (dddkursk.ru):
According to experts, the budget deficit as of the end of 2022 might exceed the target
Considering that the secondary effects of the imposed sanctions have intensified and the Central Bank has toughened its rhetoric regarding a possible key rate rise, won’t all this be hampering the financing of not only sanctioned activities, but also current operations of Russian companies?
ELVIRA NABIULLINA:
I would like to stress that a possible key rate rise you are talking about is aimed at decreasing inflation.
A slowdown of inflation is absolutely necessary to ensure the affordability of loans, especially long-term ones.
Imagine that we are not raising the key rate and inflation is accelerating. This will mean that credit rates will remain high. We will be ready to increase the key rate, if needed, exactly to make credit resources affordable while maintaining financial stability if proinflationary risks materialise.
Returning to the beginning of your question, I should say that to avoid the risk of higher taxes, including higher rates, the budget deficit should certainly be controllable and the Government should ensure long-term budget stability.
Please Mr Zabotkin.
ALEXEY ZABOTKIN:
I would like to give just one comment.
If, hypothetically, tax rates in the economy are raised, the budget deficit will decrease, all else being equal. The contribution of the budget to changes in money supply will also contract in this case, which reduces the necessity to maintain higher rates in the economy.
QUESTION from TASS Agency:
You have said that you also considered an increase. Did you discuss only the minimum rise or any alternatives as well?
And question two, please. The Ministry of Finance announced that banks would also take part in the contribution to the budget. Could you please comment on whether the Central Bank assessed how many banks would be able to take part in this and would not this involve an excessive burden on them?
ELVIRA NABIULLINA:
We did not discuss any particular percentage of the key rate increase. We only considered the possibility of raising the key rate.
As regards banks’ contribution to the budget, frankly speaking, we have not found any solid grounds for banks to become an exception from the general rule in the current situation. The only important aspect for us in this issue is that only banks that do not use our regulatory easing should be subject to this general rule if it is applied to banks.
QUESTION from RBC:
I have two questions.
The first one is related to Raiffeisenbank and Sberbank who developed a plan for exchanging European and Russian assets, or to be more exact, that was Raiffeisenbank who developed the plan. Is this plan in line with the Bank of Russia’s view? What is the regulator’s general position regarding such plans when the sanctioned Russian banks are able to exchange assets with Western banks?
My second question is about foreign currency conversion. As far as we know, some Russian banks are facing difficulties with the conversion of legal entities’ foreign currency into rubles, whereas there are no such problems in relation to individuals.
Do you have any information about this problem and does it require any response from the Bank of Russia or any recommendations?
ELVIRA NABIULLINA:
Speaking of the exchange of assets between banks, we do not have any general position in this regard. First of all, it is necessary to understand whether such a deal needs to be approved. If this involves a money transfer abroad, this will certainly require a special permit.
By the moment, we have not received any suggestions about these particular deals and, therefore, I cannot give any comment about this.
As to the difficulties with the conversion of legal entities’ foreign currency into rubles, we have not observed this problem at a systemic level, but we will check it once again.
QUESTION from RIA Novosti:
It has become known recently that ALFA-BANK is preparing a deal to change its shareholders. Could you please comment whether such a deal is subject to the Bank of Russia’s approval? Have you received a relevant application? What will be the Bank of Russia’s decision? Can the regulator approve the deal?
And question two, please. At the end of last year, the State Duma approved a limit of ₽1.4 million for fee-free money transfers between bank accounts held by the same individual that was also supported by the Bank of Russia. However, banks insist on a considerable reduction in this limit. Has the Bank of Russia changed its position regarding this issue? What should be the limit on money transfers, according to the Bank of Russia’s opinion?
And another question if I may. Last year, there was an unexpected increase in fixed capital investment by 4.6%. Will this figure continue to grow, in the Bank of Russia’s opinion? How significantly and what will be the sources?
ELVIRA NABIULLINA:
Speaking of the change of ALFA-BANK’s owner, we have not yet received any such suggestions. Accordingly, we have no information about the structure of the deal and, therefore, we cannot know whether it is subject to the Central Bank’s approval. I cannot give any comment about this as we have not yet received any request from the owners and the bank.
As regards the option of fee-free transfers of one’s own funds from one bank to another within the limit of ₽1.4 million, our position on this issue is the same. We do understand that some banks do not agree with this, but we consider it critical for people to have the right to freely transfer their own savings from one bank to another, at least within the insured amount.
The fact is that we do not support the practice when a bank retains customers by setting high tariffs and high fees whereas another bank is offering more beneficial terms. This is actually hindering competition. Hence, we stick to the same position and are not going to change it in any way.
As to the growth of fixed capital investment, the figures were really quite high last year. We explain this by two factors.
In the first place, many private investors were seeking to complete as soon as possible those investment projects that had already been started, expecting a possible further tightening of the restrictions on deliveries of components, equipment and so on. We really observed that acceleration on the part of private investors.
The second factor that was certainly important was investment from the Government and state-owned companies. They increased.
As regards this year, our forecast that we prepared for our previous meeting assumes a slight reduction in investment, considering the high base of the previous year. We believe that private investment will remain moderate for a while, whereas the dynamics of government investment will, rather, be positive. However, we will assess the trends taking into account incoming data and, if needed, update our forecast on investment.
QUESTION from TuvaMediaGroup (Republic of Tyva):
I have heard from my acquaintances that Russia has now started printing more money additionally. Is this true? Won’t this affect inflation?
ELVIRA NABIULLINA:
The overall money supply in today’s banking system depends on both the amount of loans issued by banks and the budget operations. This is what forming money supply. It is totally normal that it is gradually increasing. This reflects the fact that the economy is growing. However, money supply should be expanding proportionately to the economic growth, economic activity and, accordingly, the inflation target. This is essential. Actually, our monetary policy is aimed at ensuring this balance. In this case, inflation will be at our target.
Besides, households and businesses use a part of money in cash, that is, physically printed on paper, whereas cash-outs as such do not create any additional money supply.
In other words, if you withdraw ₽1,000 from you plastic card in an ATM and receive cash, you will not be able to use this amount from the card as it is no longer available there. Although the amount of cash held by households is growing, demand and its impact on inflation have not changed in any way.
However, your question is possibly about a different issue. In the parlance of central bankers, economists, money printing usually implies unlimited monetary financing of the government or companies from the central bank. Such actions inevitably entail an acceleration of inflation.
If no limits are set on the expansion of money supply, there will be an unlimited increase in prices. We are not doing this.
QUESTION from Dengi 24 media project:
I would like to ask my first question as an experienced mortgage borrower. The Central Bank has been actively monitoring the situation with mortgages from developers at 0.01%, 0.001% and so on, but developers jointly with banks are moving along. They have already invented a tranche mortgage, a cashback mortgage, and the devil knows what else, if you will, but this is really so — the devil itself will not understand.
I would like to find out whether the Central Bank is now monitoring this situation and what might be its possible actions in this regard?
And question two, please. Unfortunately, there have been abnormal spikes in prices for low-liquid shares in the stock market increasingly more frequently. My question is as follows. Are they still accidental, spontaneous or are, rather, provoked by actions committed in collusion by a group of persons? Is the Bank of Russia monitoring this situation?
I would like to get off the topic a little, if I may. My colleagues have already mentioned banks’ difficulties, let’s say, in the USA and Europe. The Bank of Russia has a really good, vast experience of providing aid to banks and depositors, experience of banks’ financial resolution.
If your colleagues from the European Central Bank or the US Fed phoned you for a consultation and asked how to resolve the situation, what would you advise them to do, what would be your recommendation?
ELVIRA NABIULLINA:
You’ve asked quite many serious questions. As regards various mortgage schemes, including mortgages from developers, tranche mortgages and mortgages with a cashback, we are not at all happy with these schemes, the devil knows what they are as you’ve said, and I totally agree with this. We are not only monitoring these schemes, but are also ready to make a decision about them.
What else do we see? This is obvious from statistics in general, by the way. In the first place, we can see that there is a growing proportion of loans with a low down payment, that is, loans potentially involving higher risks that are issued to people with high debt service-to-income ratios. In other words, there has been an increase in the proportion of loans issued to people who will have to pay 80% of their incomes to service their debt. Hence, this scheme potentially involves high risks as well.
This is why, beginning on 1 December, we raised the macroprudential buffers for banks if they issue mortgages with a low down payment. The next increase will be from 1 May, that is, we are taking measures in this regard.
Speaking of mortgages from developers, we will be increasing the requirements for provisions for banks applying these schemes. Of course, we will be doing this to maintain financial stability and avoid bubbles, on the one hand. This will also ensure social protection, on the other hand, because all these schemes, this ‘party’ as they say, will ultimately be paid for by people from their own incomes.
Of course, we will be combating these schemes. I have already said and would like to reiterate that if these schemes multiply, we will insist that the State Duma should consider our initiative and approve the decision permitting such mortgage programmes only in accordance with strict laws and preventing any deviations. All these deviations do not benefit borrowers in any way, but are largely unfair sales when borrowers are actually deceived.
As regards abnormal or non-abnormal spikes in prices for low-liquid shares, indeed, trading volumes and liquidity in on-exchange trading generally decreased over the past year, the free float dropped, non-residents exited the market, and many retail investors became cautious, which is why price responsiveness to the number and quality of transactions has increased, objectively increased.
Low-liquid assets have always been characterised by elevated volatility. Assets of this group have always been more volatile. However, this volatility has become more evident when the percentage of Russian individuals in the market increased. The reason is that, in contrast to institutional investors — and foreign investors were often institutions — individuals both often lack knowledge and make emotional decisions more frequently. This is what causes such significant price fluctuations. Indeed, we probably need additional measures in this area.
The exchange has already taken certain measures to limit the most aggressive orders in the stock market and introduced opening auctions in the foreign exchange market. This issue is relevant for both the stock market and the foreign exchange market although you are talking of the former.
Currently, there are also other options under consideration. This is discussed with market participants. Possible options comprise the launch of discrete auctions, a decrease in price ranges, and some instruments for the stabilisation of this pricing process. They are under discussion, but we will most probably need to make these decisions.
This is rather an objective process, but we believe that it requires a number of additional measures and, of course, we are monitoring this situation.
As to our experience of responding to a banking crisis, as you know, banking crises do not repeat — they differ from one another across countries. Both the USA and the European Union have also accumulated a sufficient experience of overcoming such crises, banking crises from 2008 and over previous decades.
Many countries have developed and are taking both regulatory and macroprudential measures within international standards, including Basel. All countries are studying each other’s experience.
However, one of the main lessons learnt from such crises is probably that the fundamentals, that is, well-balanced monetary and financial stability policies, help avoid such systemic problems. It is critical to adhere to these policies in any case.
QUESTION from Bloomberg:
I have several clarifying questions.
The first one is about an easing of dividend withdrawals by foreign companies from unfriendly states.
Are we to understand that portfolio investors whose money has now got stuck in Russia have no chance to transfer their dividends abroad? Is there a chance or not to withdraw dividends for companies that have been operating for a long time and continue to operate in Russia, such as Raiffeisenbank or BP, if they have investment in Russia? This is my first clarifying question.
The second one is about the maximum discount for Russian crude. It was introduced before your previous meeting and then you said that it would take time to assess the effects. By the moment, are you able to estimate the effects of this measure? Is it a proinflationary or a disinflationary factor? Please, help understand this.
My third question is possibly somewhat ridiculous, but foreign regulators are saying with a straight face that they cannot find the $300 billion of the reserves they have arrested, of the Russian reserves that have been sanctioned. You have mentioned exactly the amount of $300 billion. They say that they have found a much smaller amount, and the figures are really very small. Is it possible that Russia does not have such an amount of arrested reserves and you have managed to somehow hide everything?
ELVIRA NABIULLINA:
As regards an easing of the rules for dividend withdrawals, portfolio investors’ dividends, we really have restrictions in place. They imply that, in the case of credit institutions, the decision is to be made by the Government Commission or the Bank of Russia. Nevertheless, there are no changes planned in this respect.
If there is any liberalisation, it will be for dividends from investment made after a certain date. It is still to be discussed how this mechanism should function since, when a company continues to operate, it would probably be rather difficult to distinguish between its previous and new investments. This issue requires a further discussion. Today, it might be premature to talk of how this could function.
As to the impact of the introduced maximum discount on inflation, overall, we believe that these changes in oil taxes have a neutral effect on inflation.
Indeed, the decision was made actually simultaneously with our previous meeting in February. We did not take it into account in our forecast, but budget expenditures under the fiscal rule are set depending on the basic oil and gas revenues that are not revised.
The new procedure only adjusts the size of the oil rent received by the budget, with global oil prices being at a certain level. Therefore, changes in taxes rather influence the dynamics of the National Wealth Fund’s liquid balances.
In other words, their key macroeconomic effect is to enhance the resilience ensured by fiscal policy. Actually, these changes insure the budget against the risk of a shortfall in oil and gas revenues when pricing is not transparent, but the new procedure does not change budget expenditures or the contribution of the budget to aggregate demand. Hence, we state that it has no significant effect on inflation, that is, it rather impacts the budget and the situation in the National Wealth Fund.
As regards the reserves, I would not be able to answer this question.
QUESTION from Kommersant:
The Federal Customs Service and, then, the Bank of Russia as well resumed publishing information on the balance of trade, although it is not as detailed as before. Thus, we now know the size of the balance of trade for January. It is small.
Nevertheless, we know the value of imports and it is still steadily high and is unlikely to decline considerably. In this connection, I would like to return to the discussion of the previous round between the meetings of the Board of Directors.
The dedollarisation of assets in the banking system apparently has a certain limit and the effect when we should track M2X and M2 simultaneously to assess inflationary pressure maybe discontinues this year or maybe not.
With imports at this level, can you say that the dedollarisation will stop this year or this process will slowly continue throughout the year as well — until 2024?
ELVIRA NABIULLINA:
There is another factor impacting M2X. This is the substitution of external financing for domestic borrowings, but this does not result in the dedollarisation of banks’ balance sheets in full.
Nevertheless, the substitution of external debt for domestic debt was very active last year. According to our estimate, this process will also continue this year and, possibly, next year as well, because not all companies had short-term foreign borrowings — some of them had rather long-term external liabilities. If they are not demanded to repay the debt ahead of schedule, this process might be extended over time, but will not be as intense.
Would you like to add anything, Mr Zabotkin?
ALEXEY ZABOTKIN:
I would like to start out with a short comment on the disclosure of the balance of trade. The schedule of the publication of statistics on the balance of trade is exactly the same as before the pause. Previously, this information was released with a one-month lag, as far as I remember, on the 45th day after the end of a reporting period.
Indeed, data on certain product groups are slightly less detailed, but this is the only difference.
As regards M2X, the substitution of foreign debt for credit issued inside the Russian banking system results in the growth rate of M2X that is close to its maximum over several recent years. In other words, the largest portion of money supply servicing the Russian economy is indeed generated inside the Russian banking system as our connection with the global financial system is now not as apparent as it used to be.
Changes in M2 relative to M2X that were very evident last year are actually about the dedollarisation of banks’ balance sheets, about changes in the ratio of ruble and foreign currency deposits in the liabilities part of banks’ balance sheets. Nevertheless, the dedollarisation probably should have its logical end, after which these movements will, indeed, converge. These two processes were provoked by the same events, but strictly speaking, these are slightly different measures of the adjustment of the financial system and the economy to the changes that are now happening.
QUESTION from TV channel Saint Petersburg:
I’ve got a sort of ordinary question about credit cards and the so-called pre-approved loans.
What I can see even among my acquaintances is that, now, banks are quite frequently and aggressively offering people to take a credit card that they did not apply for. My question is related not even to this, but to the fact that credit terms are rather non-transparent, that is, I can see quite often that people do not understand how high their interest rate per annum is and that an interest rate on credit cards might reach 30% or even more, with the average rate currently equalling, let’s say, 15%.
In this connection, I would like to ask you two questions. Is the Central Bank planning to tighten the control over such offers? And the second question. Are there any additional financial literacy programmes as people obviously fail to fully comprehend the terms of these cards when they take them.
ELVIRA NABIULLINA:
This is a really important question. We are facing the problems that you have mentioned and are taking measures. If needed, we will continue to tighten the measures in this regard. Indeed, banks and not only banks are inventing creative schemes to sell something a person does not need very much or even does not need at all in some cases. We are continuously monitoring and combating these schemes. Of course, this requires close cooperation with other authorities and we are cooperating with the Federal Antimonopoly Service, the Rospotrebnadzor, and the Roskomnadzor first of all.
Thus, if a person did not give consent to ads about bank products, it is necessary to complain to the Federal Antimonopoly Service. We know that our colleagues in the Federal Antimonopoly Service respond to such complaints very quickly.
As regards consumer loans, non-transparency of their terms is also a long-standing problem. Banks are now obliged to disclose individual lending terms as a table in a simple and easy-to-understand form. If a person does not receive such a table from a bank to be able to understand all the terms, this is a violation. Moreover, if you were misled at a bank and received a loan or a credit card and, when you returned home, you understood that this was not exactly what you expected, you have 14 days to reject this credit card and this loan without any fines and the bank’s consent. This is the so-called cooling-off period.
However, if the bank refuses to take back the card or the loan, this is classified as a direct violation of consumers’ rights and, in this case, it is necessary to complain to the Online Reception of the Bank of Russia. We will surely explore this situation and restore the rights. However, in this case, one should understand that if a credit card or a loan was used during these 14 days, the money should be repaid together with interest charged.
Financial literacy that you have mentioned is critical as well. We have a comprehensive programme implemented jointly with the Ministry of Finance to provide more information to people not only about various products, but also about how they can restore their rights since the information on how the rights may be restored is also crucial in this case.
QUESTION from Russia 24 TV channel:
Today, you have given several comments about the impact of the banking crisis on the global financial system. What is your expert opinion about the possibility of a domino effect after the situation that we are currently observing with Credit Suisse when large investors, including Saudi Arabia and China, divest from the bank? Will the Western monetary authorities have sufficient funds?
ELVIRA NABIULLINA:
We can see that the monetary authorities are making quite prompt decisions to mitigate these risks. Of course, we will keep an eye on this situation. As I have already said, we do not see any domino effect or impact on the Russian system. This is because the Russian system is now connected with the global financial system to a much lesser extent, on the one hand.
Besides, speaking of the resilience of Russian banks, they are less exposed to this vulnerability, so to say, that has affected banks in the USA and the EU, on the other hand. The reason is that Russian banks do not have such accumulated risks on their balance sheets that have been created due to the long period of low interest rates. These risks stem not from the current increases in policy rates by foreign central banks, but from the long periods of very low interest rates. This is also important to understand, I believe.
Moreover, we have the experience of the previous year. Because of the unprecedented external shock, the interest rate risk in Russia was much higher than even the risk that US and European banks are now facing, and Russian banks have managed to cope with this risk and maintain their capability to continue lending. Nevertheless, we do take into account this factor in our decision-making, as I have already said. There are channels of influence on the financial system, although they are not direct. We will keep an eye on this situation, but we assume that foreign central banks have a well-developed toolkit to address such banking crises, are ready to apply these tools and will mitigate these risks promptly.
QUESTION from Interfax:
My first question is as follows. Did the Central Bank take part in the discussion of the idea about offerings of thematic bonds, or ‘patriotic’ bonds as they are also called and what is the Central Bank’s opinion about this idea?
The second question. Is there at least anybody by the moment who has received a positive response to the application for the unblocking of assets in Euroclear and Clearstream? Does the Bank of Russia have any information about such cases?
My third question is related to today’s event that is so important for the stock market, that is, the announced recommendation for Sberbank’s dividends. Besides, they will be paid out as of the end of the year not only from the previous year’s profit, but apparently from retained earnings as well. If other banks decide to follow Sberbank’s example and share their retained earnings with their shareholders, will not this entail risks to the sector’s capital?
ELVIRA NABIULLINA:
As regards various thematic bonds, we did not participate in the discussion of this topic and, therefore, I am not yet ready to express my view about this type of bonds.
Speaking of the unblocking of assets, even if there are some individual positive cases, it is certainly critical for us that a larger number of investors, retail investors that have been affected could restore their rights. Financial intermediaries, investors themselves are currently carrying out such work and we hope that their rights will be restored.
As to the possibility of dividend payouts by banks and their potential impact on financial resilience, as you know, we made the decision within our competence, the regulatory decision allowing banks to pay dividends of up to 50%, provided that they comply with the schedule, including with regard to provisioning and the increase in the buffers for which we granted certain easing, and raise their buffers during five years. If banks follow this schedule, they are allowed to pay 50%. There are no restrictions for the banks that will return to those rules for the buffers that were effective before February 2022. This means that, in this case, we do not see any risks to capital adequacy and so on. If they are not making use of our regulatory easing in any way and have sufficient capital even relative to the ratios that were in place before, we do not see any need for such restrictions. However, owners in every bank should certainly consider and make decisions depending on their plans for development, ensuring the potential for lending, and so on and so forth.
QUESTION from the Invest Future project:
I’ve got the following question. Considering everything that is happening in the West, does the Bank of Russia have any communication, can there be any communication with Western central banks for clarifying the current situation and, actually, for receiving information about whether we might face a new financial collapse? How all that is currently happening there affecting the frozen assets? Does it have any influence at all? How are new, additional, voluntary or mandatory contributions influencing inflation and do they have any impact now?
ELVIRA NABIULLINA:
Apparently, you are talking of businesses’ voluntary contributions.
We maintain communication with central banks, first of all those that are ready to have contact with us. As to Western banks, there are almost no contacts with them. Nonetheless, the information about the current developments is public and we are able to analyse it. I would like to emphasise once again that the developments in Western financial markets have an extremely limited direct effect on the Russian financial system.
We believe that these developments will not influence the situation with the frozen assets in any way. Actually, this is a separate issue and it should be addressed in the course of interaction between investors, our depository systems with Western regulators, but this is a separate track.
Speaking of how businesses’ contributions might be influencing inflation, this is possible through private companies’ investment demand, among other things, that is, this will depend on how strongly this contribution will impact private companies’ investment plans. There is no direct effect on inflation, but such contributions might certainly affect companies’ willingness to invest, increase investment demand and, thus, influence aggregate demand and inflation. In other words, there might be an indirect effect, but there is probably almost no direct influence.
Mr Zabotkin, do you have anything to add?
ALEXEY ZABOTKIN:
This is exactly the point in the short run because, if these are the funds that companies would have used to make additional investment and this investment is not made as the funds are used by the Government, most probably, this will reduce aggregate demand in the short term, but only if these additional revenues are used to finance the already planned government expenditures. If these funds are used to cover additional expenditures, the effect will be neutral. However, in the medium term, the intensity of investment influences the dynamics of economic potential and, therefore, medium-term effects might be more complex.
QUESTION from the Law and Invest project:
I have another question about the digital ruble, if I may. It is set to be issued very soon and, without any exaggeration, I can say that some people are very concerned about this fact. People would like to hear your comments on two main aspects.
The first one is as follows. Are there any plans to completely replace non-cash rubles for digital rubles? If yes, what is the planned period for this?
The second question has already become a mythologeme. Does the digital ruble have any maturity? People have concerns that digital rubles will expire if not spent within a certain period.
ELVIRA NABIULLINA:
The first thing I would like to stress once again is that we are going to introduce the digital ruble carefully stage by stage. There are no plans for an administrative replacement of one form of money for another one. There are no such plans. We will simultaneously have non-cash rubles that people have got used to, cash, and digital rubles in wallets in the form of tokens. It’s just the opposite: this expands the number of options available to people and they may choose any form that is convenient for them.
There will be no limits in terms of maturity and there can be no such limits in fact.
QUESTION from NTV channel:
The Bank of Russia has been keeping the key rate unchanged for the fourth straight meeting. What does this mean? Is this stability or stagnation? Does the Central Bank have any other interpretation?
ELVIRA NABIULLINA:
It would be difficult to give a brief answer to this question. Please Mr Zabotkin.
ALEXEY ZABOTKIN:
Half seriously, it is actually quite good that we do not need to change the key rate for the fourth meeting in a row. This has not happened frequently over recent years. Probably, this is explained by the fact that today’s level of the key rate is totally in line with the current economic conditions, our forecast, and the ratio of risks to this forecast. The future path of the key rate will depend on how significantly this opinion will be changing.
ELVIRA NABIULLINA:
I would like to add that any our decisions on the key rate, whether we raise, cut or keep it, are aimed at returning inflation to 4%, if it has deviated from 4%, and maintaining it at this target further on. This is the only objective. In other words, our decisions are basically aimed at ensuring price stability.
QUESTION from Argumenty i Fakty:
My first question is about cheap insurance policies purchased for mortgages. People are seeking to save on insurance but, ultimately, their insurance policies do not cover some diseases, for instance, cancers, and it might so happen that people lose both jobs, as they become disabled, and housing. Is there room for regulation in this area? Is the Central Bank going to prohibit this?
My second question is as follows. Could you please somewhat expand your comment on the situation in the West. If Jerome Powell overtightens policy on 22 March and thus brings down the US stock markets, will the Russian market follow them downwards or has it become sufficiently independent by the moment? Has everything bad already occurred by now?
ELVIRA NABIULLINA:
As regards cheap insurance policies, when people do not pay anything, they do not receive any real money in this case. They pay little, but they do not receive anything either. There is such a problem. This is exactly why we have started raising the issue about the customer value of various financial products. If this is an insurance policy, it should cover certain cases and people should certainly receive this compensation. Therefore, we assess multiple products to ensure that people receive a real value purchasing such products. Of course, we will continue to address the problem that you have mentioned.
Speaking of the impact of both the US and EU central banks on our system, indeed, they have a serious problem with balancing their objectives. These objectives are to bring inflation down and ensure price stability and financial stability in the conditions when interest risk increases amid growing interest rates and financial stability risks actually emerge. We hold that this is not solely an issue of monetary policy. Any central banks have tools to maintain price stability and financial stability. Last year when there was such a period, we were shoring up financial stability by granting regulatory easing and introducing various liquidity-providing mechanisms. However, decisions on monetary policy and the key rate certainly influence financial stability. There might be an overtightening, as you have said, and, as a result, a possible turbulence in the financial market, not to speak of financial destabilisation.
Therefore, when any central bank makes such decisions, when it faces a dilemma — and, now, I am certainly recalling our situation — financial stability issues become a top priority. Last year, we raised the key rate to 20%, including to limit financial stability risks. This is why I believe that central banks will take all necessary measures to prevent such risks.
There are also other expectations as well, another option that, being wary of financial stability risks, central banks will, to the contrary, slow down monetary policy tightening and allow higher inflation. In this case, inflation in reserve currencies will indeed be higher. However, in our opinion, this will nonetheless require a more significant tightening in these countries later on. They will have to do this even after the vulnerability decreases, possibly, and inflation devalues the accumulated debt. This will affect global growth. In the former case, if the balance swings to one side or another, it will affect Russia through the growth rates of the world economy. This growth might slow down in both cases if central banks fail to pass between Scylla and Charybdis sufficiently delicately, so to say. This might affect global growth and, accordingly, the demand for Russian exports, as we have said. However, there is no direct effect on our financial system or a threat of its contamination. Indeed, we are currently not as connected with the global financial system, but we are certainly discussing all these issues and options and taking them into account in our decisions.
Would you like to add anything, Mr Zabotkin?
ALEXEY ZABOTKIN:
It’s quite hard to add anything in this regard. I would like to reiterate that both the problems and the choice that the US and European regulators are now facing are the result of their long-term policies of close-to-zero interest rates, due to which their banks now have a lot of assets purchased at very high prices on their balance sheets. During the period when interest rates were low, prices for all assets were certainly high. Today, as they normalise their monetary policy for it to correlate with stable inflation close to their targets, it becomes clear that prices for these assets are actually considerably lower than those recognised on balance sheets.
ELVIRA NABIULLINA:
It is possible to say that high-risk assets were purchased as risk-free assets, that is, at high prices and now they are losing value.
ALEXEY ZABOTKIN:
We did not have a period of such monetary policy and, therefore, our system basically does not have such vulnerabilities.
QUESTION from Vremya N (Nizhny Novgorod):
Will the Bank of Russia raise the key rate in the future? Is it worth opening a deposit now or is it better to wait for a while and do this at a higher interest rate?
ELVIRA NABIULLINA:
Some people really hope that we will increase the key rate.
Indeed, we have signalled that we might raise the key rate if proinflationary risks intensify. On the one hand, as I have already said, inflation trends have been moderate in recent weeks, and households’ inflation expectations have been decreasing. On the other hand, there is an additional proinflationary risk due to the turbulence in the US financial sector and companies’ price expectations remain high. Thus, we now see that the ratio of risks has not yet changed as compared to the time of our previous meeting. What does this mean? This means that there is a likelihood of a key rate increase, but this is not certain. Therefore, speaking of people who are making a decision to open a deposit or not, of course, they should think of their financial goals in the first place. They might wait for a key rate increase, that is likely not to happen, but over the period when they will be holding their savings at home, they will be losing the interest income they could have received if they opened a deposit already now. Of course, they need to make calculations and comparisons.
QUESTION from Frank Media:
My first question is as follows. The Moscow Exchange, as we can understand, at the suggestion of the Central Bank, decided not to follow its own dividend policy and the investors were not very happy with the payouts as of the end of the year. Could you please explain what was the aim of the Central Bank actively repeating that the game rules should be clear to investors when it supported, advised or recommended such trade-off payments to the company as, obviously, you did not want not to pay anything at all, but payments were still below the threshold of the dividend policy?
My second question is about Sberbank that, to the contrary, paid rather generous dividends. Sberbank’s President Herman Gref said that, among other things, this became possible as there was no requirement to repay the subordinated anti-crisis loan to the Government. My question is as follows. How do you assess the Government’s capacity to provide capital to other players that might need such aid and will the Government need any new instruments to replenish capital in the situation where Sberbank does not repay this amount?
I’ve got two clarifying questions. My colleagues have asked you about ALFA-BANK and mortgages. As to ALFA-BANK, regardless of whether or not it will make that deal, we can see that it is a backward movement, so to say, into the middle of the 2000s when owners settle problems with their names on the sanction list and there is a redistribution of stakes in favour of a partner who would have never been able to participate in such a deal if that was a money deal. What is the Bank of Russia’s position about this movement backwards in a sense?
And the last question about mortgages. Frank Media is very closely monitoring developers’ and banks’ offers. Judging by our recent observations, we can say that mortgages at close-to-zero interest rates are certainly receding into the past and turning into programmes at
ELVIRA NABIULLINA:
You have asked a lot of questions. As regards the first one about the exchange, the fundamental approach is indeed a clear dividend policy and compliance with it, which is essential to ensure investors’ confidence and, generally, to improve investment prospects of both companies and the economy. This is why it is critical. Besides, there is a certain rule of corporate governance to disclose and explain the reasons for dividend amounts if they are not in line with the policy. In other words, such things can happen and everyone can understand that such a situation is possible. Of course, this issue is addressed individually in each particular case, depending on the situation in a company. Therefore, such comparisons are probably possible, but it cannot be said that there should be any single solution for all. It is necessary to take into account a company’s future development and its current situation and to make sure that it has sufficient funds for its development and implementation of investment projects that ensure long-term returns on investment. This is a prerequisite for its earnings in the future. A special focus on dividend policies should certainly be placed by those companies that are subject to regulatory requirements for capital adequacy. We are talking of banks and infrastructure companies of the financial sector.
Indeed, the Supervisory Board of the Moscow Exchange made the decision to temporarily suspend its dividend policy with regard to the minimum amount of profit distributed as dividends and plans to revise its dividend policy. Is it possible? Of course, it is. Dividend policy can be updated, especially if the situation has changed, and, considering the current geopolitical environment, this might be the case. However, this procedure should be transparent and, of course, a company should communicate with market participants, investors for them to understand the logic behind the revision of its dividend policy. This is the comment I can give about the first question.
As regards the repayment of the subordinated loan and the possibility of an increase in capital for other banks using this subordinated loan, first of all, these funds are the ownership of the Government and, hence, this is within its competence to decide how to use this loan if it had been repaid. Speaking of an increase in banks’ capital, indeed, some banks do need this. We are carrying out work with owners to ensure that the increase in capital is according to the schedule and capital adequacy is restored in due time, considering the easing that we grant in relation to the buffers. We are confident that this will be done.
As to the backward movement, I can see no such movement in that sort of deals. As regards the incentives, this is the question to the owners. However, if we receive a request for the coordination of this deal, we will certainly assess it, including the buyer of the shares, for compliance with all requirements of laws. There are legal requirements in this area and we will strictly adhere to them.
As regards mortgages from developers, this is true, the Ministry of Construction suggested the alternative of
QUESTION from Izvestia:
Today, online banking is still available in Telegram, and my question is as follows. It is possible to use such solutions or should banks terminate their integration with Telegram? Will they be allowed to integrate with social networks, for example, VK and others?
I’ve also got a clarifying question about the situation with Western banks. Could you expect such problems? Are there any risks of a global crisis?
ELVIRA NABIULLINA:
As regards banks’ integration with social networks, the interaction with foreign messengers is possible if it is not subject to the bans set by the law that became effective on 1 March. Any transmission of personal data, payment documents and so on is prohibited. Ordinary messages are probably possible. Of course, it is convenient for banks to work with messengers and it is convenient for people as well. We are perfectly aware of this. It is crucial to have Russian messengers with relevant functions and, preferably, there should be competition in this area for banks not to depend on any particular messenger. This process is now underway, given that the law was adopted and came into force.
Speaking of whether we expected these problems in the banking sector and the financial market, I guess that hardly anybody could have expected these very problems with these particular banks at that moment. However, it was clear that they had accumulated vulnerabilities, and Mr Zabotkin has mentioned them. Understandably, when interest rates increase, financial stability risks can be identified, they already existed and they might be simply detected, emerge and, I believe, this was clear to many. I think that a lot of central banks have a well-developed toolkit, as I have already said, that they will use it to mitigate such risks. They could also see this exacerbation of vulnerabilities, imbalances and they were aware of these imbalances. Thus, we consider that this situation will not entail any global crisis.
Would you like to add anything, Mr Zabotkin?
ALEXEY ZABOTKIN:
I would like to stress that, of course, this was not a part of the baseline scenario. I mean that a large-scale global financial crisis is not a part of the baseline scenario that we rely on. We do note that the risk of such a scenario has slightly increased, but if it materialises, this will be a proinflationary risk. Such a scenario was given as the risk scenario in our Monetary Policy Guidelines published in October. Besides, it assumes a very tough scenario as an illustrative example. We are not saying that we are moving in this direction, but this was really one of significant risks as a source of risks that we factored in when developing our Monetary Policy Guidelines for this year.
ELVIRA NABIULLINA:
We considered an even worse case as the risk scenario.
Thank you for attention.