• ул. Неглинная, 12, Москва, 107016
  • 8 800 300-30-00
  • www.cbr.ru
Что вы хотите найти?

Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting on 22 October 2021

22 октября 2021 года
Выступление
Поделиться

Good afternoon,

We made a decision to raise the key rate by 75 basis points to 7.50% per annum. This is a significant increase and, obviously, this is not a fine-tuning exercise. This decision is driven not only by the current pace of inflation, but primarily by high inflation expectations and a considerable revision of the forecast compared to July. Inflation will be going down from a higher point than we assumed. This will require a greater tightening of monetary policy than we planned in our July forecast and expected in September.

I will now explain in detail why we have made this decision.

First of all, I would like to talk of inflation.

In August and especially in September, inflation significantly exceeded our forecast. During the first weeks of October, we could see no signs of a weakening of inflationary pressure.

Although the sudden surge in inflation that occurred in September was provoked predominantly by temporary factors, we consider this situation as potentially dangerous as it affects inflation expectations. I would like to remind you that inflation soared in September due to a smaller vegetable harvest and higher costs in livestock production. Meat, milk, and vegetables are all the so-called marker products. When prices for marker products surge, even if their share in the consumer basket is rather small, this might speed up inflation expectations. This is what we observed in sugar and sunflower oil prices last year. Today, inflation expectations are already high, and this impact might be even stronger.

Inflationary pressure is still spurred by higher prices in global markets. Recently, prices for food products, coal, non-ferrous metals, and especially natural gas continued to trend upwards. Increased gas prices are pushing up prices for nitrogen fertilisers, which might ultimately become an additional driver of pressure on prices in food markets put by agricultural enterprises’ costs. However, there are also goods demonstrating a stabilisation of prices and even their adjustment downwards. These are steel, iron ore, precious metals, and lumber. Nonetheless, we cannot be confident yet about how steady these trends are. Global markets remain a source of elevated inflation risks.

However, the question is not only and not so much about transitory factors. It is more important that the indicators of steady inflation are above the target. This is about demand-side pressure, or to be more precise, about a considerable gap between the current level of demand and the potential of supply to meet such demand. It is not always possible to build up production capacities quickly. Supply may adjust to demand more slowly due to limited capacities, a shortage of components and raw materials, logistics bottlenecks, and — with regard to the economy in general — due to the lack of a sufficient number of workers.

It may take a long time to overcome these restrictions and ramp up supply. Until these problems are solved, elevated demand will not turn into higher consumption, but will only translate into an increase in prices for those consumers who will be ready — or simply forced — to buy products at higher prices. All other consumers will be unable to purchase more expensive goods. This is exactly what we are observing now. The situation with cars is probably the most telling example.

Excess demand, which cannot be met through an expansion of production, is not a source of additional economic growth. In such an environment, producers have the opportunity to easily pass their extra costs on to consumers. Hence, this discourages companies to enhance production and labour efficiency.

Today, demand is fuelled by high inflation expectations. After the decrease in August and September, households’ and businesses’ inflation expectations are rising anew and have already returned to the peaks recorded in recent years. The longer inflation expectations stay elevated, the more we need to tighten our policy in order to bring inflation back to the target.

We have considerably raised our inflation forecast for this year, as compared to July, namely to 7.4–7.9%. We have also increased the forecast range of the annual average key rate for the next year by 1.3 percentage points, as compared to July. Considering such policy, inflation will decline to 4.0–4.5% next year.

I will now speak of the economic situation. Except oil production subject to the OPEC+ cuts, the economy generally bounced back to its long-term growth trends in the second quarter and even exceeded them in a number of industries. Growth slowed down in the third quarter, which is evidence that the recovery had completed. It should be noted that the third quarter GDP was affected by a decrease in harvest and the worsened epizootic situation. Excluding agriculture, we estimate that GDP growth quarter-on-quarter was positive.

Consumer demand remains the main contributor to the growth. One-time payments to households also supported consumption. The surveyed companies expect a further expansion of demand. According to the data on GDP for the second quarter and recent statistics for the third quarter, gross fixed capital formation also grows fast this year, and even faster than we assumed in our July forecast.

The oil industry is a large sector where there is still a substantial space for the recovery growth. The OPEC+ is gradually easing the oil production cuts. Furthermore, the environment in the global markets of energy commodities has improved considerably. We have raised the forecast oil price for 2021 and 2022, specifically to 70 and 65 US dollars per barrel, respectively.

I will now briefly talk of the situation in the labour market. The unemployment rate has decreased close to its record lows, while the number of vacant jobs has approached its record high. To fill the new jobs, we need either an inflow of labour migrants, or a redistribution of the current labour force among regions, industries, and enterprises. This process is objectively slower than the return of the available labour force to work during the period of the recovery growth. A higher competition for specialists between employers is promoting the conditions for an increase in wages. It is essential that a rise in wages is consistent with the growth of labour productivity in the relevant sectors. Otherwise, it will entail higher costs which enterprises will pass on to consumers, and the rise in nominal wages will be ultimately absorbed by inflation.

We keep our GDP forecast unchanged for the next year and further on. An additional tightening of monetary policy aimed at returning inflation to the target is coherent with the positive contribution of external demand and investments from the National Wealth Fund made to aggregate demand. GDP will increase by 4–4.5% this year and by 2–3% further on, which is in line with the sustainable growth path.

Monetary conditions have changed only slightly after the September meeting. An increase in market rates following the rise in the key rate currently has only a limited effect on them. This is largely associated with the impact of higher inflation expectations. Lending growth rates remained high in all segments, which is the main indicator evidencing that monetary conditions remained accommodative, rather than neutral in the third quarter as well.

Over the period from the September meeting to yesterday, yields on federal government bonds rose by 50–60 basis points. The increase in short-term yields suggests a revision of market expectations regarding the key rate, whereas growth in long-term yields is driven by the trends in global markets.

Deposit rates continued to go up in September—October, although more slowly than in the previous months. Deposit terms are not yet sufficiently attractive to boost households’ demand for this form of savings.

As regards lending, the corporate segment continues to expand steadily. Growth in consumer lending has slowed down somewhat. As regards the mortgage segment, after a slight deceleration in July—August due to the revision of the subsidised mortgage lending programmes, growth sped up again in autumn. In this context, we have revised our forecast range of retail lending growth for this year upwards by 3 percentage points to 21–25%. The forecast for lending in the economy in general remained unchanged. Currently, the actual changes in the credit market are obviously not sufficient to form such monetary conditions that would help bring inflation back to 4% and stabilise it at this level. Our today’s decision will accelerate the adjustment in the credit and deposit market.

As regards risks to the forecast, proinflationary ones currently prevail.

The main risk is that inflation expectations stay elevated for a long time. The longer the price growth rate remains high, even if fuelled by temporary factors, the more considerable this risk is. We could already observe this over the recent three months.

As regards external conditions, proinflationary risks persist as well. In the first place, they are associated with prices for energy commodities and other commodities. The damper mechanisms protect the domestic market against fluctuations of global prices for commodities. However, an increase in foreign producers’ costs might also affect inflation in Russia. For instance, this happens when we import foreign equipment and vehicles made of more expensive metals.

Disinflationary risks are mostly associated with the fact that producer costs might decrease as fast as they have risen. We have recently observed a multifold increase in prices for container shipments. This has pushed up cargo delivery costs worldwide. However, this growth has stopped by the moment. Possibly, even if prices do not decline to pre-pandemic levels, they might adjust downwards considerably closer to their initial level of this year, and later on this will translate into product prices.

Another important disinflationary factor is still recovery prospects in outbound tourism.

I should focus on the anti-pandemic restrictions that are currently introduced. Last spring, we believed that restrictions would cause a slump in demand, that is, provoke disinflationary risks. This is exactly what happened in the second quarter of 2020. However, the experience of the subsequent waves of the pandemic has proven that restrictions are impacting demand increasingly less, whereas supply contracts when enterprises are forced to suspend operations. We consider that restrictions rather have a proinflationary influence now.

The industries that directly depend on restrictions, primarily services, will be affected most considerably. The Government has introduced support measures to aid the most vulnerable industries, first of all small and medium-sized enterprises and their employees. The Bank of Russia, on its part, has allocated a limit of 60 billion rubles within a special 4% refinancing programme for the banks that would issue loans on preferential terms to small and medium-sized enterprises affected by restrictions.

We have also recommended that banks and microfinance organisations should approve restructuring applications for those individuals and entrepreneurs who need this.

I will now speak about our future decisions. It has become more probable that the level of the key rate will be higher, and the period during which the key rate might stay at this elevated level will be longer than we assumed in our previous forecast. According to our baseline forecast, the key rate will average 7.3–8.3% per annum next year, and 5.5–6.5% per annum in 2023. In other words, the key rate will return to its long-term neutral range no earlier than in the middle of 2023.

Thank you for attention.

Q&A session

QUESTION from Reuters:

Did today's Board meeting consider increasing the key rate by 100 basis points? When is the monetary tightening cycle due to end?

ELVIRA NABIULLINA:

I will tell you straight away that we did consider that option. Indeed, we had several options on the table, and a 100-basis-point increase was one of them. It would be premature to discuss the end of monetary tightening. We will be closely watching how things unfold.

QUESTION from Interfax:

My first question is about inflation. Would you say that its current level has peaked and is on course for a decline? Or do you leave open the chance that it will go beyond 8%?

And another about the key rate. The range for the key rate is estimated to be between 7.5% and 7.7% through the year-end. Does this mean that you do not rule out any unconventional decisions for a more drastic rate increase, to be made at the December meeting? Analyst calculations show that you may again look into a 100-basis-point increase.

ELVIRA NABIULLINA:

Commenting on current inflation, let me stress that it is being shaped by one-off factors. We see this with food prices and the harvest data. Overall, we forecast year-end inflation to be in the 7.4–7.9% range, a broad enough range, given the impact of current factors.

We need to make the drivers of core inflation fade out. This is what we are seeking to deliver through our decisions.

As regards seasonally adjusted inflation, quarter-on-quarter comparisons show that Q3 inflation was lower than Q2. We will be watching developments in the fourth quarter. Naturally, we expect our new monetary policy decisions to bring about a decline in core inflation measures next year.

Now concerning the key rate. Moving forward, we indeed do not rule out any non-standard action. The 100-basis-point increase scenario was discussed today as well as at previous meetings: it is possible within the key rate range we are planning through the end of the year.

QUESTION from RBC:

Is our reading of the press release correct: the Bank of Russia does not view the new pandemic restrictions being instituted across many regions as a potentially disinflationary factor? Could these restrictions influence your key rate decisions moving forward? And, if they could, how long would they have to last and how rigid would they have to be?

ELVIRA NABIULLINA:

As I have said, we view the impact of anti-coronavirus restrictions as pro-inflation drivers affecting supply more than demand. Certainly, much will ride on which specific restrictions are instituted in the regions, and on their duration. Our decision-making will be based on situational analysis as well as on epidemiological developments and the restrictions being put in place.

QUESTION from The Bell:

What is the Bank’s view of stagflation risks, global and domestic? Are there any plans for an anti-stagflation response?

ELVIRA NABIULLINA:

If stagflation is defined as persistently low, even negative, growth rates concurrent with high inflation, I do not really consider it a highly probable scenario either for the global economy — at least for our trading partners — or for the national economy.

The risks of high inflation have indeed come into sight across the globe. Those risks have been incorporated into one scenario, among others, in the Monetary Policy Guidelines for the next three years. Yet, the scenario assumes that sustained inflationary pressures will make global central banks, including the Bank of Russia, tighten their monetary policies to bring inflation back to target.

This policy is set to cause a decline in output, other things being equal, and that is apparent from central banks’ approaches. At this stage, many central banks hold the view that the upward trend in domestic inflation is essentially short-lived. But, should drivers emerge suggesting inflation is sustained in nature, central banks can be expected to institute more rapid monetary tightening to prevent high inflation.

On the subject of long-term growth rates, economies across the globe are indeed on course for a shallow growth trajectory, largely on the back of structural factors such as slower population growth, slower technological advancements and the energy transition. These are factors to be reckoned with. As far as we are concerned, more attention should be paid to structural changes to deliver high growth rates.

QUESTION from TASS:

My question is as follows. The President has instructed that a package of measures to support agricultural producers be developed to control food prices. Was the Central Bank involved in those deliberations? Perhaps you also have some proposals with regard to price controls?

ELVIRA NABIULLINA:

Not really. It is the responsibility of the Government and the relevant ministries to come up with proposed actions to address price changes in specific sectors. Our role is to steer inflation and price growth in the broad economy through monetary policy.

QUESTION from Izvestia:

Is there an estimate for the contribution of unmet demand to inflation? How much does it add to the inflation rate?

ELVIRA NABIULLINA:

Unfortunately, I cannot clarify here (what is meant — Ed.). This is a written question. The author is referring either to the growth in unsecured credit or to so-called excess demand, that is demand that rising supply is unable to meet.

In the second case, such demand has an effect on how much core inflation will go beyond our target. Core inflation is meaningfully above target with no signs yet of a slowdown to come. It may have stopped accelerating, but not enough for inflation to return to the target (close to 4% — Ed.). That is why today's decision is meant to have a weakening effect on sustained drivers of inflation — the factors that you have in mind.

QUESTION from Kommersant:

What are the new one-off factors that the Bank of Russia has identified at this meeting as opposed to previous Board meetings? What is the overall rationale for the change in the year-end inflation forecast?

ELVIRA NABIULLINA:

As opposed to the previous meeting, we highlight the harvest data, which have fallen short of expectations. In another development, the livestock sector has increasingly come under pressure from epizootic developments. Furthermore, logistics problems have had a prolonged effect. This is clear from, for example, developments in the automotive market, such as the demand and prices for cars.

So the change in the forecast for this year is in no small measure explained by the strong impact of one-off factors.

QUESTION from Bloomberg:

Certainly, you have substantially raised the key rate. That was unexpected. All the more unexpected was the decision being made on the cusp of a lockdown, at a time when the entire economy is getting ready for it. Although the press release makes no mention of lockdown, you have now explained that you see the lockdown as an inflation factor.

That is what I would like to ask about. Has yesterday’s news about the lockdown added some hawkishness to your stance? And then, perhaps, your arrow brooch symbolises another shock to our economy, in addition to the lockdown shock. In other words, what was this factor’s contribution to the rate increase?

And a closely related question about communication. As I just said, the move was unexpected, that is, most analysts could not read your signals, or there were none. That is to say, there is a problem of communicating with the market. Does that mean that you know more than you are telling us? Do you know of something awful that the future holds? Because this is a very alarming signal.

ELVIRA NABIULLINA:

On the rate increase, our decision-making process is based on a lot more than one factor. We take a multitude of factors into account. We are seeing no slowdown in inflation, not at the moment at least. The fact that inflation expectations are up is a sustained factor. Rising inflation expectations concurrent with rising prices for products that are market markers, as I have mentioned, have the potential to strengthen secondary effects and feed into prices for a wide range of products.

Our view is that more radical monetary policies are needed to prevent this.

On the impact of the lockdown, I can only reiterate that we view it as an inflation factor.

Regarding its implications for the economy, the restrictions are likely to affect businesses in only a limited number of industries. Undoubtedly, the service sector will be one of those. The service sector is a sector of small- and medium-sized enterprises, and they are vulnerable to these restrictions. That is why the Government is taking very prompt action to provide targeted support to those enterprises, that is, to support the part of the economy that is likely to be affected by these restrictions.

We in turn have made relevant decisions to ensure that banks continue lending to such enterprises regardless of restrictions. Lending to small- and medium-sized enterprises is on the rise. At the same time, our position is that we should still fight inflation at this juncture because price growth is a problem for all households.

QUESTION from Rossiyskaya Gazeta:

What, in the Bank’s view, is the upper limit on the key rate? Not an ambiguity, but a more realistic range for the moment.

More broadly, what is the upper limit of the impact of the growing key rate on inflation in the current setting, considering that we can see that monetary methods alone have failed to tame it. Have we come close to that limit?

ELVIRA NABIULLINA:

We refrain from forecasting an upper limit for the key rate, and we will continue to do so. The forecast we provide is for the annual average key rate. We have updated our forecast, and we believe it is the annual average key rate that determines monetary conditions and [monetary policy] transmission, which makes it most important. Let me say again: we only release forecasts for the annual average key rate.

On the subject of limits to the impact of our monetary policy or an upper limit on the increase in the key rate, we are capable of bringing inflation back to our target, bringing back inflation mainly driven by sustainable factors. Core inflation is currently above our inflation target.

Certainly, we take into account how one-off and transient factors influence inflation expectations, and we can see that those factors are pushing inflation expectations higher to the effect that they ultimately are becoming persistent factors. Admittedly, we cannot shape those factors through monetary policy measures.

QUESTION from Belfinans, Belgorod

My question is about food inflation. The central bank looked to seasonal factors to reduce food inflation through rich harvests of fruits and vegetables. However, as you have said, yields have fallen short of expectations. As of late September, we can see that food inflation is still rising both in the Belgorod Region and nationwide.

In this regard, I have two questions. One, given that the forecast did not come to be, is it right to say that we should not expect food inflation to drop before the end of this year?

And another question, please. Is the Bank of Russia still capable of bringing about a slowdown in food inflation through the key rate or any other tools?

ELVIRA NABIULLINA:

You are correct in that we really did expect food inflation to drop. That did not happen because this year’s harvest did not meet expectations, and further pressure has come from the epizootic situation, which is evidenced by the data on meat products and the livestock sector.

It remains to be seen how food inflation will evolve by the time the harvest season is over. It is contingent on weather conditions. That is one of the reasons why the year-end forecast range is so wide at 7.4–7.9%.

7.4% would signal the likely start of a decline in food inflation, while 7.9% would be a sign that current growth rates may linger. Therefore, the course of events will largely depend on what happens in agriculture.

Monetary policy primarily influences aggregate demand, and, through it, overall inflation. Our policy should deliver an overall decline in inflation, including food inflation.

QUESTION from RIA Novosti:

The Bank of Russia has upgraded its outlook for mortgage growth in 2021 to 23–27%. However, today's decision may limit the availability of basic programmes. What is behind that expected market growth, and is there a risk of a bubble emerging? In this context, does the Bank of Russia intend to further tighten mortgage regulation?

ELVIRA NABIULLINA:

It is true that we can see that mortgage lending is expanding faster than expected. The subsidised mortgage programmes have been modified but remain in demand, and the targeted family support programme is sought after. The basic programme is also attractive to borrowers. The upgrade in the mortgage outlook is based on this year’s actual data. These data have enabled us to raise our 2021 forecast.

As for the risk of bubbles, the risk may originate more from the quality of loans rather than from current growth rates. We are watching for movements in the debt burden and loan-to-value indicators. They are essentially unchanged, but we need to keep an eye for changes in them. We are prepared to enact further macroprudential measures should these qualitative indicators raise concern. But let me say again that macroprudential measures would rather be triggered by qualitative indicators for mortgage loans.

QUESTION from Interfax:

My question is about retail loans. You have said that the Bank of Russia would consider increasing risk ratios for unsecured retail loans if they grow at a fast pace. Considering that you have raised the overall forecast for retail loans, what are the chances of your using this tool before the State Duma passes the law enabling the regulator to limit the share of unsecured loans?

My second question is about Otkritie Bank. Today is the bidding deadline for potential buyers. Can you tell us if anyone is interested in buying 50% of Otkritie, or perhaps the entire group, and what are the chances of an Otkritie IPO? Is that the preferred option?

ELVIRA NABIULLINA:

As regards retail lending, growth has indeed slightly slowed down. We are watching for any changes there, and we are prepared to use the available tool, in the form of capital adequacy buffers, should the need arise. On quantitative restrictions, if the law passes soon — which is what we expect — in the autumn session, we will have to release relevant regulations, and we are working on them. However, banks will also need to adjust their information and technological systems. That will take some time.

We envision that these measures will take no less than six months, from the date the new law is adopted, to be implemented. Therefore, we are certainly not ruling out the use of the available tool if risk factors emerge in the unsecured consumer lending market.

As for the sale of Otkritie, yes, the bidding deadline is today. Any comment would be premature, at least until tomorrow, but an IPO remains one of the preferred options.

QUESTION from UralBiznesKonsalting, Yekaterinburg

Inflation is rising on the back of quickly recovering demand that is outrunning output. However, a higher interest rate means that loans are becoming costlier for businesses. Businesses will struggle to ramp up output quickly in these conditions, won’t they?

ELVIRA NABIULLINA:

The first thing to say is that current monetary conditions do not limit credit activity. Corporate loans are growing at the quick pace of about 9% in annual terms, our calculation show. That is much higher than in the pre-pandemic period. That is, corporate lending is expanding.

Second, the businesses in various sectors of the real economy have had record high balanced financial results. What does that mean? It means that they made profits. If we take the balanced financial result for the 12 months before this July, and we have statistics for July, we are talking about a little more than 21 trillion rubles. The number for 2019, pre-pandemic (2020 would not be an appropriate comparison), was 15.8 trillion rubles. Compared to the pre-pandemic level, corporate profits are one-third higher.

Moreover, profits were made in non-commodity sectors, too. The manufacturing sectors reported a significant 50 per cent increase in profits. Higher profits were also recorded in the agricultural sector. Profit is a source of financing for investment and the expansion of production, alongside the available lending resources, which are gaining momentum.

Growth is currently held back by a number of constraints, including on the supply side. It is further constrained by the rise in labour costs, which companies are struggling to ramp up in some locations and markets. Other constraints include logistics problems and a shortage of components, including those which are imported. Therefore, we see supply-side constraints more than anything else.

QUESTION from Fomag.ru magazine:

Higher rates suggest that businesses will find it increasingly difficult to obtain and service loans. Is there then a risk of default and bankruptcy when borrowers fail to service debt? What implications does that carry for growth and recovery?

ELVIRA NABIULLINA:

In fact, this question is connected with the previous one. As I have said, we are seeing no big default or bankruptcy risks that would be triggered by failures to service debt. Companies are reporting higher profits. Certainly, every sector has high-performing and underperforming companies. Many companies may have to exit the market, giving way and handing over their resources to more efficient businesses that are capable of expansion. That is how the economy and labour productivity grow.

QUESTION from Vedomosti:

What would the Bank of Russia regard as acceptable growth rates for household savings in measuring the impact of monetary policy in the current situation? Should they outrun the growth rates of loan portfolios?

ELVIRA NABIULLINA:

I would say that, here, we need to compare more than just the growth rates of savings and loan portfolios, which evolve in parallel. The entire [monetary policy] transmission mechanism works through both loans and deposits, not to mention the foreign currency channel and the income channel.

What we can observe at the moment, however, is that the propensity to consume is strengthening as savings, especially bank deposits, have lost appeal.

 Needless to say, movements in both deposits and loans are on our radar.

QUESTION from Reuters:

My question is about mortgage loans, too. Banks have chalked up loans worth trillions of rubles for 2020 and 2021, and we understand that households obtained those loans at the most attractive rates. Accordingly, banks’ interest rate risks are rising while they are issuing many long-term loans, and the key rate keeps growing. Hence my question: what is the regulator's view of this situation? Can you see risks there? Do you intend to take action, and is this problem on your radar screen?

ELVIRA NABIULLINA:

Absolutely, interest rate risks for banks are a significant portion of risks, and we have always looked to banks to manage interest risks.

For example, the Finance Ministry took on a large share of interest rate risk on subsidised mortgage loans, and many of those were issued last year. Still, banks should manage their interest risk and assess it, rather than passing it on to borrowers through floating-interest loans. And even if they do that, they should be regulated.

In banking, interest risk management should actually be a top priority and a professional commitment.

QUESTION from Bloomberg:

The US Fed has finally agreed to allow bitcoin ETFs to trade on the exchange. Is the Bank of Russia ready to do the same?

ELVIRA NABIULLINA:

No, it is not.

QUESTION from Interfax:

Are there any risks, in your view, that next year's inflation might deviate substantially downwards from the target, in the context of all your decisions? You often give a three-year average range; for example, you have mentioned that inflation averaged 3–4%. Could we say that your intention is to keep inflation below target within the next year so that the resulting rate of inflation for two years, this year and next, averages about 4%?

And another question. Could you comment more on the impact of restrictive measures and their inflation effects; how are they set to influence the economy? Can you see any risks of them combining with current monetary policy to bring a risk of low economic growth persistently below potential? Has that been reflected in your GDP outlook, which is unchanged, although you have previously admitted you could upgrade it?

ELVIRA NABIULLINA:

First, regarding inflation moving below target. The first part of the question is whether that risk exists. And the second is whether we have that goal.

We cannot say there exists any high risk of that kind. I admit there are some disinflationary risks for our baseline scenario, but overall inflation risks are tilted to the upside.

Should persistent inflation factors fade out and cause a drop in inflation, we will take the appropriate monetary policy measures.

We are not aiming to bring inflation below target. We can really only make measurements after the fact, calculating the three-year average, but we know full well that inflation cannot stay within 4% each year. It is volatile, and the multiple one-off factors we are talking about add to its volatility. However, our target is 4% annual inflation.

The other question is about the economic impact of the restrictions. In our opinion, the restrictions that have now been announced are unlikely to make much difference. Future developments will be determined by the epidemiological situation and the anti-crisis response. The top priority here is human health. At the same time, we have yet to adjust our forecast to these new measures. We have not yet even discussed them, due to the timing, since the announcement was made only a short while ago. Still, we believe that the impact will be small.

Given the current monetary policy stance, there is no risk yet of the economy growing below its potential. Several industries are likely to come under pressure, primarily the service sector and the sectors that have yet to recover to a pre-pandemic level, so the recovery is likely to take longer there.

QUESTION from Kommersant:

Does the Bank of Russia expect domestic demand to grow at a slower pace in the coming months, but not stop growing altogether? In general, does the Bank of Russia estimate the inflation effect of the lockdown in autumn 2021 to be lower than in autumn 2020?

ELVIRA NABIULLINA:

No, we do not expect domestic demand to stop growing. In our view, growth is set to continue into 2022 and thereafter.

As regards the pro-inflation effect of this year’s lockdown, it is likely to be level with last year or slightly lower. At the moment, it is hard to say with full confidence.

QUESTION from BankNN, Nizhny Novgorod:

My question is: according to the National Credit History Bureau, the number of mortgage applications dropped 41% in September on the same period in 2020. Are there drivers, in the Bank of Russia’s view, to enable the mortgage sector to grow in the absence of the incentives that were provided until this July by the subsidised mortgage programmes?

ELVIRA NABIULLINA:

The question of mortgage lending is truly important. I would like to start by saying that there is a great deal of confusion between the growth of mortgage portfolios and the growth of mortgage loans. You say that the number of applications fell 41% in September. However, the expansion of lending is reflected in the portfolio growth indicator. By the way, this is true not only of mortgage lending, but of all types of lending, in fact. Disbursements are driven by, in addition to new loans, the refinancing of active loans. The number of applications [for new loans] may not paint the whole picture since a loan may have been repaid through a bank other than the issuing bank. Importantly, there was a large amount of refinancing last year, helped by lower rates. Refinancing is ongoing, and people are having their higher interest loans refinanced. Therefore, the decline in disbursements may be the result of shrinking demand for refinancing in the context of higher rates.

That is why it is not quite correct to interpret credit activity only through loan disbursement data. The quarter-on-quarter mortgage portfolio captures real growth in mortgage loans, and it has been rising at a fast pace, similarly to one year ago, and twice as fast as in 2019.

True, the subsidised mortgage programmes have been modified, but they remain available. The basic rates for mortgage loans are still in demand, so we expect mortgages to post double-digit growth both this year and next year.

QUESTION from Yenisei TV company, Krasnoyarsk:

What was behind the strengthening of the ruble? What were, and will be, the implications for inflation trends?

ELVIRA NABIULLINA:

As you are well aware, our exchange rate is floating and shaped by multiple factors. Undoubtedly, the favourable global commodity markets have had positive effects, as have the rising volumes of our exports, with the global economic recovery and rising demand for our exports in physical volumes.

Our current account is supported by recovering volumes of oil, oil product and metals exports. The rate hike certainly boosts the appeal of ruble assets for foreign investors and for our people.

Exchange rate changes pass through to prices gradually. This process normally takes between three and six months, subject to the product group, and even longer for some groups. This pass-through is also extended over time when the ruble strengthens.

We calculate the pass-through of an exchange rate change to the change of price growth as a ratio of around 0.05. What does that mean? It means that a 10% appreciation of the ruble, adjusted for all the lags I have mentioned, will subtract approximately one-half of a percentage point from inflation over a one-year horizon. We take this into account in our forecasts and calculations.

QUESTION from RIA Novosti:

The Finance Ministry proposes an increase in the limit triggering the spending of money from the National Wealth Fund from 7% to 10%. Does the Bank of Russia support this decision?

ELVIRA NABIULLINA:

We do. In principle, we support a decision like that. We believe that, given the challenges that lie ahead for the domestic economy (the general trends in financial markets and the energy transition), it would be good if we could rely on a sufficient safety cushion. Nonetheless, we understand that the Government will be investing [some money from the National Wealth Fund], and the 10% limit allows about 2.5 trillion rubles from the National Wealth Fund to be invested in major investment projects.

Thank you for your time. Have a nice day.