the Central Bank has lowered its key rate by 0.5 percentage point to 5.5% per annum. The logic is clear: “samosoglasovannogo” the economy more than ever need a support, and at low (still) the inflation, this step is uncontested. It makes more loans available to citizens and businesses, which in turn could hypothetically revive effective demand for goods and services. However, life surely determines otherwise. Consumer lending in Russia can hardly be accelerated in conditions of extreme uncertainty and total impoverishment: when many people literally have nothing to eat, and coronavirus promises new troubles, not to new loans.
As has declared on a press-conferences the head of the Central Bank Elvira Nabiullina, the regulator sees the potential of reducing the key rate by 1 percentage point in 2020.
Recall from the summer of last year, the Central Bank lowered the rate six times in a row: in February 2020 – 6%, but in March made a pause – because of the shocking departure of the global and Russian economies “quarantined”. He has now returned to the policy of monetary easing: the rate will drop, even if I will not reach the level of inflation, says financial analyst FxPro Alexander Kuptsikevich. According to him, under normal circumstances, this would have led to the weakening of the ruble as low interest rates make investments in the Russian currency less profitable. But in the new reality our regulator decided to follow the example of Central banks of other countries: on the eve of Ukraine the rate was lowered 2 percentage points in Turkey – 1, South Africa 1, Mexico – 0.5.
“Obviously, investors are focused on finding those assets that are able to show a V-shaped rebound in the coming months. Low rates and packages of care is now obvious support for the currency,” – says the expert.
Before, when the ruble was “blown away” in different kinds of crisis situations, the regulator dramatically increased the rate to reduce the outflow of funds from ruble-denominated assets. Apparently, with the “gap pattern” and refers to the current such a long delay – the Bank of Russia decided not to take this step in March, although he considered it. Meanwhile, says Kuptsikevich, it allows to maintain the internal market lending at lower rates to banks is easier to receive funding to then lend to the business. Now the banks will almost certainly be more active to reduce their Deposit rates, but credit – less willingly.
the decision of the Central Bank of 24 April, the ruble has responded to the heightened (dropping below 80 euros and coming close to the 74 per dollar), although theoretically it was supposed to be the opposite, — draws the attention of the Deputy head of IAC “Alpari” Natalia Milchakova. Most likely, the expert assumes, it is connected with the regulator that it does not expect growth inFlachi during the year due to strong disinflationary impact on the economy outside of April and other economic consequences of the pandemic. That is, the currency market participants hope that the new measure, the Central Bank will make life easier for small and medium businesses.
“At best, this will only happen in the medium term, since the ability to gain new loans from small and medium business is extremely limited due to the regime self-isolation and forced the closure of a number of industries – to service existing loans,” says Milchakova.
At the same time, the decision on key interest rate – good news for natural persons-borrowers of banks. This means potentially lower interest rates on mortgages and consumer loans, and the ability to refinance the previously obtained loans at lower interest rates. But Bank depositors, in contrast, have nothing to rejoice, because the interest on deposits will decrease. Moreover, it reminds Milchakova, next year for investors, whose Deposit amount exceeds 1 million rubles, the Central Bank will start to charge tax on interest on deposits. Accordingly, we can expect the outflow of deposits, although not significant, in the conditions of growing unemployment previously made savings in the banks will still have considerable value.
meanwhile, at an online press conference on 24 April, which followed a meeting of the Board of Directors of the Central Bank, Elvira Nabiullina spoke again about the “helicopter money”. In her words, don’t confuse them with direct budgetary payments to citizens and businesses that the Bank supports. Mass distribution of funds to the population could lead to “an explosive growth rate of inflation,” believes the head of the Central Bank.
