Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting on 29 April 2022
Today, we have made the decision to decrease the key rate by 3 percentage points to 14% per annum.
I would like to remind you that our decision to raise the key rate to 20% was an anti-crisis measure and was made to limit financial stability risks in the first place. Since early April, they stopped to increase. The situation is stabilising, and this means that we may remove the increment from the key rate that was needed to mitigate these risks. Inflation trends have enabled us to ease monetary policy. The reduction in the key rate will promote the structural transformation of the economy without creating proinflationary risks.
I would now dwell on the reasons behind our decision.
Firstly, inflationary pressure and inflation expectations are declining. The evidence for this is that households’ soaring demand has diminished and the ruble has strengthened. Over the last two weeks of March, inflationary pressure stabilised after its surge in early March. However, it still remains high.
In April, households’ inflation expectations returned to the levels of mid-2021. According to the surveys of households, expected inflation is below the observed price growth, that is, people believe that prices will no longer rise as fast. Companies’ short-term price expectations edged down as well, but they are still higher than last year. The stabilisation of inflation expectations and an increase in households’ propensity to save mean a decrease in the risk that the inflationary spiral might get out of control.
Secondly, economic activity is declining. In the current situation, supply is contracting more significantly than demand. This is what provokes inflationary pressure at the moment.
Disruptions in technological, production and logistics chains and the termination by some foreign companies of their operation in Russia cause a reduction in the range and availability of many consumer goods. The most illustrative example is the automobile industry. Companies that used foreign raw materials or components are facing problems as they are gradually running out of stocks. The question is how long these difficulties will persist and how quickly businesses will be able to find new suppliers and replace the missing links of the production chain.
The decline in demand is still more moderate compared to the shrinkage of supply, but might become more considerable. In particular, investment demand is going down because the economic situation is highly uncertain. In such conditions, companies opt to invest available unallocated funds in risk-free assets or return them to shareholders rather than make investment in development projects. Moreover, some investment projects are no longer relevant and thus cannot be completed, whereas companies will need time to prepare new projects. As regards consumer demand, after its surge in late February—early March, people now prefer to save rather than consume. This is evident from both the expansion of ruble deposits and the contraction of consumer lending. In terms of inflation, it is important to consider how demand trends will be changing relative to supply dynamics in the future.
During this period, monetary policy should take into account the processes of adaptation and structural transformation in the economy. They inevitably involve a temporarily higher level of inflation. This is why we have no intention to quickly bring inflation back to the target. Squeezed demand would hamper the structural transformation of the economy. This would lead to a situation in the economy where prices would grow slowly, whereas the range of goods and services would become increasingly more limited and some essential products would be simply unavailable.
Speaking of monetary conditions, they remain tight.
On the one hand, both the ruble exchange rate and yields on federal government bonds returned to the level of
I would now speak on our macroeconomic forecast.
The termination of long-term economic relations will have a negative impact on GDP this year. GDP will decline by
I would briefly talk of the labour market. The situation here is currently quite stable. By March 2022, the employment rate dropped to its record low. Today, the labour market is adjusting to the new conditions primarily through forced leaves, part-time employment schemes, and reduced bonuses. However, due to the current transformation of the economy, the labour market has to address new challenges. The structure of employment will be definitely changing, which might require a redistribution of labour resources both between industries and professions and across regions. We will assess how these processes will influence the pace of the structural transformation of the economy and, accordingly, inflation processes.
The situation with the balance of payments has altered significantly. This year, we might see a record high current account surplus reaching 145 billion US dollars. However, this is not a favourable situation. It only evidences that the contraction of imports is much more considerable as compared to exports, in terms of both their quantities and value. During the next two years, trade flows will be partially rerouted. Imports will start to bounce back gradually. Exports will continue to edge down, including due to declining global prices for core exports. This will cause a notable decrease in the current account surplus.
Speaking of inflation this year, the main driver will be the factors limiting product and service supply. These are rising costs incurred by companies, including for logistics and rearrangement of their production processes, and changes in business models. Supply is contracting more significantly than demand, which is intensifying inflationary pressure. According to our forecast, consumer prices will go up by
Prices will mostly adjust to the changed conditions this year, and to a lesser extent — next year. As a result, annual inflation will slow down to
Our forecast takes into account all fiscal policy decisions approved and announced by the Government. Updating our forecast in the future, we will factor in all additional decisions as they may have a significant effect on our forecast.
Winding up, I would like to talk of possible risks to our forecast and monetary policy prospects.
The current situation is extremely uncertain. Simultaneously, supply trends and the factors driving aggregate demand are also changing dramatically.
Today, supply is declining faster than demand, but this trend might change in the future. This means that proinflationary and disinflationary effects are both possible. Therefore, it is crucial for the Bank of Russia to make prudent decisions factoring in the changing balance of risks.
At the moment, we consider that the scenario where proinflationary factors and risks prevail is the most probable one. Nonetheless, the pendulum might swing the other way, and in this case demand will decline more quickly than supply. This might occur in a situation where consumers still prefer to save as much as possible, while supply already starts to recover.
There are also other circumstances that might impact our future decisions. For instance, they might be associated with exchange rate movements and a credit contraction, as well as new external trade and financial restrictions that might occur. Indeed, a lot will depend on the development of the situation that is changing very fast. Hence, high-frequency indicators, both at the macrolevel and at the industry and regional levels, are becoming increasingly more important. Today, we see room for a key rate reduction until the end of the year. Currently, the forecast range of the average key rate is
We will make our further decisions on monetary policy considering that the economy needs to adjust to the dramatically changing conditions. Price stability is always the top priority for us as it is critical for steady economic growth.
Thank you all for your attention.
Q&A for the Media
QUESTION from Interfax:
What peak of inflation do you expect and when will inflation reach this peak?
And the second question, please. The US is currently studying how to transfer the frozen Russian reserves to Ukraine. How real is this threat as the reserves were frozen but not seized? What proportion or amount of these reserves is in the US?
Previously you said that Russia can file lawsuits with regard to the freezing of the country’s reserves. What is the stage of this process?
My second question is as follows. How will Gazprombank sell the foreign currency it receives as payments for Russian gas in rubles? The Central Bank was to propose ‘another procedure’ for selling gas. What will be this procedure?
ELVIRA NABIULLINA:
Speaking of inflation, its annual rate will peak at the end of the year. As I said earlier, this will be
As regards sequential inflation, we have most probably passed its peak already.
ALEXEY ZABOTKIN:
Indeed, the monthly price growth rate was the highest in March. It was very high as compared to any figures on record. In April, the rate will be significantly lower. As monthly price growth rates will apparently be higher in the remaining months of spring and in summer than monthly price growth rates last year, annual inflation will still edge up slightly.
I would like to remind you that inflation was already high in autumn 2021, especially in September—October. Annual inflation will most likely pass its peak to a certain extent in autumn, reaching
ELVIRA NABIULLINA:
As regards a possible seizure of the frozen part of Russia’s gold and foreign currency reserves, we are preparing all necessary legal remedies for any scenarios. This is a large scope of organisational and legal work. Can we be confident that we will be able to resort to legal remedies?
We are now in a situation when many institutes have been cancelled or will most likely be cancelled soon. There are no recipes of how to respond to these cancellations. Nonetheless, there is a suggestion that we need equivalent decisions with respect to the assets of unfriendly countries and related persons. However, this issue is beyond the Central Bank’s mandate.
Speaking of our legal defence strategy and tactics, we are currently carrying out extensive work in this area, but it would probably be too early to talk about any details now.
As to payments for gas in rubles, the procedure for selling the foreign currency transferred to special accounts as payments for gas, as well as generally the relationship between gas buyers and the authorised bank are stipulated by the relevant Executive Order of the President, the decision of the Board of Directors, and the related rules adopted by the authorised bank itself.
The effective procedure clearly sets the period during which the funds from foreign currency sales should be credited to the ruble accounts opened by the natural gas buyers. This period is two business days after the authorised bank receives foreign currency from the buyers. These rules are available to the gas buyers and provide a clear understanding that the payment mechanism itself is transparent and well-balanced.
Hence, we do not consider it necessary to amend the established procedure.
We do receive some information that there are gas buyers who are concerned about possible difficulties with the conversion of the foreign currency credited in the special accounts with the authorised bank and, consequently, the potential impossibility of payments for gas in rubles.
In this regard, we would like to assure you that if a buyer complies with the established procedure for interaction between gas buyers and the authorised bank and there are no problems for the authorised bank associated with foreign currency sales on the exchange due to the restrictions imposed by foreign states, there can be no obstacles for making payments and receiving natural gas.
QUESTION from TASS Agency:
Could you please say when the regulator expects inflation to slow down steadily?
And another question, please. Does the Bank of Russia consider the possibility of further decisive moves, similar to those approved today to reduce the key rate by three percentage points at once? Should we expect similar generosity in the future?
ELVIRA NABIULLINA:
As regards a steady slowdown of inflation, we are all definitely interested in this. As I have already said, the current inflationary pressure is now declining, but this is after the surge in prices recorded in February and March. Further trends will depend on future developments, in the first place on how quickly goods and services supply will adjust to the changes. This is one of the dominant factors now.
Speaking of our further moves, this is true, we cut the key rate by three percentage points at the previous meeting and by another three percentage points today. However, as I have already said, this decrease was to remove the so-called increment from the key rate. When we raised the key rate to 20%, one of the main factors was the necessity to mitigate risks to financial stability.
Therefore, everything will certainly depend on further developments, but our baseline scenario assumes more moderate moves in the future. Moreover, if you pay attention to our forecast of the key rate until the end of this year, our baseline scenario also assumes that the situation can develop in such a way that we might have no room for a reduction. Hence, a lot here will depend on future developments and the influence of various factors.
QUESTION from Financial One:
My first question is about dividend payouts and companies’ reporting. Should public companies disclose reporting and pay dividends now? I am speaking of Russian companies.
My second question is about foreign investors who now have limited opportunities to sell Russian securities. How long will this freezing last considering that the Russian stock market might be exposed to high risks if non-residents start to sell Russian securities.
ELVIRA NABIULLINA:
As regards the disclosure of reporting, companies are really allowed not to disclose it. They make such a decision considering their current situation.
The same is true for dividend payouts. Companies should assess whether they need to pay dividends to their shareholders now or rather make a decision not to pay dividends. This depends on the situation in particular companies. There are companies whose financial performance is improving and they thus have the opportunity to pay dividends, being confident in their future prospects.
This difference will remain as the economy is currently undergoing a structural transformation and huge changes.
Speaking of foreign investment in Russian securities, within the framework of the capital controls we introduced, we are now considering, discussing the possibility of allowing non-residents to make portfolio investments in Russian securities within
Nonetheless, it is still too early to talk about a possible withdrawal of the earlier invested funds abroad, their repatriation in the foreseeable future.
QUESTION from Vesti Sevastopol:
My question continues the topic of inflation. What was the reason behind the doubling of prices in early March even for domestic goods that had not been in great demand earlier?
ELVIRA NABIULLINA:
One of the reasons behind the price increase in late February—early March was soaring demand driven by the ruble weakening, among other factors. A surge in demand usually affects a broad range of goods at once, regardless of whether they are imported or domestic.
Moreover, Russian goods can have imported components, even if they are minor and unnoticeable. A well-known example is paper whiteners. Besides, this may cause logistics problems and, consequently, push up prices. Nonetheless, we can observe that demand has stopped surging and price growth is decelerating notably owing to a stronger ruble.
QUESTION from Vedomosti:
The Ministry of Finance reports that it is developing a new fiscal rule. Does the Central Bank take part in this process? What is the regulator’s view of this new rule? This is my first question.
My second question is about the possible key rate changes that the Board of Directors considered today.
ELVIRA NABIULLINA:
Indeed, a new rule is currently under discussion. I believe it important to return to an anchor for fiscal policy in the medium term, which was the fiscal rule previously. This will apparently be a modified rule. It is too early now to speak of any details, unless Mr Zabotkin wants to add anything.
ALEXEY ZABOTKIN:
The Minister of Finance outlined a new rule the day before yesterday. I think that the discussion will go on for some time within the preparation of the three-year budget.
ELVIRA NABIULLINA:
Of course, we will actively participate in this process. I hope so.
As regards the decisions discussed by the Board of Directors today, the main options were key rate decreases to 15% or 14%.
QUESTION from Kommersant:
I have two questions. My first question is about companies’ and households’ saving ratios. Apparently, households will now increase their saving ratio, at least for 2022, whereas corporates’ preferences vary significantly. What is your view of this process over a longer-term horizon, over the year 2023? The matter is that figures show the accumulated result, driven by multiple factors, but will households still opt to increase their savings? The same is about companies.
My second question is about the ruble. After the introduction of capital controls, it became obvious that the exchange rate pass-through effect altered as compared to the period before February. What is your opinion about the ruble today, in the new conditions? Does it have any anchors? What should be the reference value on the balance of payments? Should we be guided by the balance of payments or something else in order to predict future movements of the ruble exchange rate? How will inflation correlate with the ruble?
ELVIRA NABIULLINA:
As regards the saving ratio, indeed, it has increased and, with a tight monetary policy in place, households’ saving ratio will be higher than in
Speaking of companies’ savings (you probably mean their deposits), I would like to ask Mr Zabotkin to comment on this issue.
ALEXEY ZABOTKIN:
I would also like to add a few words about households. Actually, there is yet another reason for savings, which is generally called the precautionary motive, that is, people prefer to save amid high uncertainty just because they feel that they need an additional safety cushion. Probably, we will observe such behaviour in the next two quarters as well. However, this trend will diminish further on, as we pass the lowest point of the economic downturn.
As regards companies, these are generally not their savings we should talk about, but rather the way they use their temporarily available funds, their available cash flows. Overall, if companies do not see any attractive projects for investment, they often do not accumulate available funds in their accounts, but rather pay dividends to their shareholders or repay their debts.
This is also a quite explicable process, but it will vary considerably across industries as the structural transformation of the economy means that its effects will differ significantly across industries. However, speaking of investors’ behaviour, as you can see from the forecast for this year, investment activity is declining notably. We expect that gross fixed capital formation will decrease by
ELVIRA NABIULLINA:
Speaking of the exchange rate, the factors impacting it have really altered substantially. With the capital controls in place, the exchange rate is primarily influenced by the balance of trade and the extent of the excess of exports over imports in this situation. This is the predominant factor, although there are still some capital flows remaining in Russia, but this is the main factor.
Nevertheless, we hold that, with the effective capital controls on the current account, the exchange rate should still be floating, that is, it should be adjusted depending on how much exporters sell and, accordingly, how much importers buy.
However, these capital controls are certainly weakening the possibility for financial markets, financial flows to smooth out exchange rate fluctuations, seasonal fluctuations. These controls on the current account are effective. Therefore, the exchange rate might be more volatile than when the capital account has no controls and the fiscal rule is in effect. In other words, these are two elements that largely smoothed out this volatility of the exchange rate.
Probably, it is essential to note in this regard that, if we talk of price stability and the effect of exchange rate movements on inflation, the mechanism of the exchange rate pass-through to consumer prices will remain the same. This will merely depend not on the capital account regime considering the capital account, but rather on the shares of imports associated with import costs.
Technically, if import prices in US dollars are steady, the effect of the pass-through to prices in rubles should be exactly the same as before. However, today, we can see that, in addition to the overall rise in US dollar prices in the market and global inflation, US dollar prices for imports also go up for us due to more expensive logistics, and so on and so forth. Hence, this may seem to be a greater pass-through, but this also reflects other factors associated exactly with supply-side shocks.
QUESTION from the Life and Invest project:
The main goal of monetary policy is to protect Russian citizens’ incomes in the national currency. We can see that actual inflation is significantly higher than the officialy reported rate. It is obvious today that the policy pursued by the Central Bank is not sufficient, that is, the current measures are inadequate. My question is about future changes in the monetary policy needed to achieve the inflation thresholds you mentioned today.
ELVIRA NABIULLINA:
Indeed, personal inflation rates differ from the statistical figure. We do understand that every household has its own structure of consumption, although households’ structure of consumption will be changing now as well and, of course, the methodology for measuring the consumer price index should technically take this into account.
As regards the adequacy of the monetary policy measures, inflation still reflects the ratio between demand and supply, as we have always said. The main drivers of inflation today are supply-side issues, insufficient supply, whereas monetary policy influences demand.
Let us assume that we considerably decrease the key rate now. Due to the current logistics constraints that do not depend on the level of the key rate, supply will remain low, which will inevitably cause an additional rise in prices. Hence, pursuing our monetary policy, we should closely monitor supply trends so as to avoid an acceleration of inflation, but, to the contrary, achieve its steady slowdown.
Moreover, it is clear that the economy will undergo a structural transformation and relative prices will adjust to the new environment. Hence, during this period, the inflation rate might be elevated and exceed the target. This is what determines our monetary policy.
Nevertheless, inflation should go down steadily. This is crucial for the economy. To ensure predictability for all economic agents and promote long-term lending, it is essential to have confidence that inflation will gradually edge down closer to the target. This is our objective.
ALEXEY ZABOTKIN:
I would like to briefly comment on the standard remark that inflation exceeds the official rate. I should refer to the results of the Public Opinion Foundation’s recent survey of inflation expectations. There are two interesting facts about it. The first one is that households’ inflation expectations decreased notably in April as compared to March. Apparently, this is largely owing to the stabilisation of the exchange rate. Inflation expectations lowered approximately to the level of mid-2021, which the Governor mentioned in her statement.
However, the second factor, which is even more interesting, is that inflation observed by households is 19.9%, according to the survey. The officially reported current inflation rate, the estimate of annual inflation based on statistics for the last week is now approximately 17.6%. This is the smallest difference between inflation observed by households and the official rate over a very long period, which actually raises doubts about how considerably perceived inflation surpasses the officially reported rate.
QUESTION from RIA Novosti:
My questions are about the reserves. The Bank of Russia disclosed the structure of the reserves approximately on 25 March. Then, you said that you had already prepared to geopolitical risks and increased the proportions of gold and the Chinese yuan in the reserves to about 50%. Has the situation changed somehow since then? What is the proportion of gold in the reserves today? This is my first question.
And another question, please. In response to the freezing of Russia’s reserves, the Central Bank also introduced foreign capital controls. Can we expect that such a situation, this status quo will remain until the controls are cancelled and our reserves are unfrozen.
ELVIRA NABIULLINA:
As to the structure of our gold and foreign currency reserves, we will continue to disclose this information, but in an abridged form and with a time lag. We will stick to this principle. This is why I will not comment on the proportions and changes now. Nonetheless, you could see that we had resumed gold purchases.
Speaking of the capital controls and, accordingly, the situation with the frozen assets, we introduced the capital controls primarily to mitigate risks to financial stability in the conditions where we are unable to carry out foreign exchange interventions. These risks rose considerably.
You have probably noticed that, later on, we took certain measures to ease these controls. We are thinking about their further easing. Our objective is to enable businesses building new chains, entering new target markets, and continuing to develop external trade to do all this and to ensure predictability for them.
However, we introduced not only capital controls to mitigate risks to financial stability. As you remember, we set the requirement to sell foreign currency earnings. At first, it was necessary to sell these funds within three days, but later on we extended this period to 60 days, at first for non-commodity exporters and then for all exporters. By the moment, we have proposed the government commission to consider the next step: we believe that it is now possible to cancel this requirement for non-energy exporters and reduce the percentage of foreign currency earnings to be sold to 50% for commodity exporters.
Furthermore, we consider it important to cancel the requirement to sell foreign currency earnings if these funds are received in the currencies of friendly countries. We have also proposed the commission to cancel the requirement to sell foreign currency earnings for those exporters who use their earnings to buy imported goods.
However, as regards capital flows to unfriendly states, we do not see any possibility for cancelling these controls in the foreseeable future. There is a special procedure for making such payments.
QUESTION from Russia 24 TV channel:
I have two questions. The first one is about the ruble exchange rate. It has returned to the levels of
Another question is associated with the stabilisation of the exchange rate. Is it possible that the Bank of Russia will cancel the restrictions on foreign currency purchases for individuals earlier than on 9 September?
My second question is as follows. Today, Kommersant released an article about a possible consolidation of VTB Bank, Otkritie, and RNCB. Can you give any comment on this news?
ELVIRA NABIULLINA:
Speaking of the ruble exchange rate, it is impacted by the introduced controls on the capital account. Yes, a certain easing in this regard is possible. However, the main factor is the ratio between exports and imports. The Central Bank does not have any direct influence on this.
As to the cancellation of the restrictions that were set until September, this will hardly be possible for cash. We will monitor how the situation will develop further.
As regards the consolidation of these banks, we supported this decision considering the following circumstances. As you know, we had been preparing Otkritie for market-based sales and communicating with potential investors. By the way, there were potential investors. However, today, we do not see any opportunity for market-based sales of Otkritie in the foreseeable future either. Concurrently, we are aware that, as the regulator, we cannot remain the owner of the bank for a long time. In these conditions, we believe that this is a reasonable decision.
QUESTION from OrelGrad:
Inflation is very high today, and this is especially noticeable in Russian regions. How is it possible to protect savings against depreciation? Is it worth investing funds in anything today?
ELVIRA NABIULLINA:
Indeed, high inflation devalues savings. Hence, our objective as the Central Bank is to do everything possible to slow down inflation, protect households’ incomes and savings against depreciation, and ensure a variety of market instruments for people to invest their funds. However, the choice of a specific instrument depends on the situation of a particular person and his/her family, the level of their incomes, risk appetite, and the planning horizon.
Nonetheless, it is essential to offer various instruments, first of all deposits. We can see that people started to deposit their funds after we raised the key rate and then banks increased their deposit rates making them more attractive despite rising inflation. It is necessary to further develop the securities market. All assets are generally accessible, and people can diversify their investments depending on the situation.
I would like to reiterate that the main objective is to lower inflation in order to avoid the risk of depreciation of incomes and savings.
QUESTION from Reuters:
My first question is as follows. The Ministry of Finance reported recently that it had made payments on Eurobonds to be redeemed this year and in 2042. Have I got it right that Russia thus avoided a default or will everything depend now on the bank that has received these funds?
And another question, please. How deep is the current discussion about pegging the exchange rate to gold?
ELVIRA NABIULLINA:
As to the debt obligations of the Ministry of Finance, I would like to emphasise once again that the Ministry of Finance has adequate resources to fulfil its obligations. Hence, in economic terms, there can be no talk about any default, but there are difficulties with payments that we can see, and I hope that we will cope with them as well. As regards pegging the exchange rate to gold, this is not discussed in any way.
QUESTION from Frank Media:
My first question is about the consolidation of VTB Bank and Bank Otkritie. Have I got it right that the Bank of Russia will not be able to return the funds used to carry out the financial resolution of Otkritie considering the configuration of the transaction?
And another question, please. Does the Russian banking sector now need the standards of the Basel Committee on Banking Supervision, in your opinion?
ELVIRA NABIULLINA:
The configuration of the transaction has not been defined yet. Hence, it is too early to speak of this consolidation now. As to the Basel standards, we have implemented them, but we have been implementing them on an ongoing basis. Moreover, as I always stressed, this has been done sufficiently flexibly with due regard to what the Russian banking system really needs.
Many risks in the Russian banking system are similar to those existing globally. Therefore, the management of these risks is also very similar, there are certain common rules and approaches, and so on. Indeed, we have been implementing them flexibly, but now we will see whether we really need these standards considering the current developments, what risks have become predominant and what risks, to the contrary, might have become not so important. We will adjust the application of the Basel standards considering our own objectives, if needed.
However, I would like to reiterate that the Basel standards themselves (on capital adequacy ratios, on various other ratios) are based on very reasonable assumptions generally related to banking activities as such. Therefore, it is definitely impossible to say that we will now start to reinvent the wheel and cancel all these standards. We will see how we should adjust them in the new conditions depending on the actual situation.
QUESTION from the Invest Future project:
I have several questions. The first one is as follows. If we assume a negative scenario where inflation continues to accelerate, is it possible that the regulator will maintain the key rate considerably below the inflation rate in order to support the economy? This is roughly a Turkish scenario.
And the second question, please. I would move away from the topic of monetary policy a little. How does the Central Bank assess the work of brokers with clients in the conditions of sanctions and will it take any measures to support investors affected due to the incorrect work of brokers? Unfortunately, there were such cases.
Another question, please. I would like to understand the extent of the risks that Russian investors will not be able to buy American or European shares, let’s say, on SPB Exchange due to the sanctions. Currently, the situation is developing quite strangely and, for instance, Russian investors can buy shares of some companies, e.g., Lockheed Martin, Boeing, and others. Considering the current rhetoric, it seems that this will not always be this way. Could you please clarify this?
ELVIRA NABIULLINA:
As regards a negative scenario where inflation stops to slow down and starts to rise, we will pursue our monetary policy in such a way as to decelerate inflation. We believe that slower inflation is crucial to support a structural transformation of the economy. Furthermore, our monetary policy is based on the absolute priority of price stability, while taking into account the need in a structural transformation of the economy and, rather, the period for bringing inflation back to the target in order to ensure the adjustment of relative prices in the economy. As I have already said, we expect that such structural transformation and the adjustment of prices will mostly happen this year and partially next year.
Speaking of how brokers work with investors, this is true, we are now receiving complaints from investors and are closely monitoring the reported situations and cases. We will find out which of them require our response. We attach great importance to this issue.
As to the question about whether and how Russian investors will be able to buy foreign securities, a lot here depends not on the Bank of Russia and our decisions, but rather on other countries’ moves. However, this situation demonstrates that those investors who buy foreign securities are exposed to high regulatory risks, so to say, including risks of freezing and various problems with settlements, and they need to take these risks into account.
QUESTION from Izvestia:
I also have several questions, just as all my colleagues. My first question is as follows. The key message of your statement in the State Duma, today’s press release, and your statement here is that monetary policy should be designed so as to benefit exporters ensuring the replenishment of budgets and support importers in the challenging situation. I would like to stress that my question is not about the forecast exchange rate of the ruble, but about a compromise exchange rate that the Central Bank considers convenient for both exporters and importers.
Does your today’s decision take into account the decision on the unscheduled indexation of wages in the public sector, social benefits, and pensions that has not been announced yet, but has actually been implemented already?
And the second question, please. One of the first versions of the anti-crisis plan discussed the issue of increasing insurance coverage in the guarantee system to two million rubles. Is this issue still on the agenda, is it relevant at all, or was it only relevant when there was a significant outflow of deposits?
My last question is about the liberated territories. The head of the Mariupol administration announced the start of payments of pensions and various social benefits. As far as I understand, these payments are made in rubles. Is the Central Bank delivering cash to the liberated territory and how, are there any problems with this, and has this required an additional issue of rubles?
ELVIRA NABIULLINA:
As regards a certain compromise exchange rate that would benefit both exporters and importers, I would like to reiterate that we do not target the exchange rate in any way. We believe that a floating exchange rate is a good thing, but now we have it within the capital controls. We do not have an objective to set any compromise exchange rate. I would like to ask Mr Zabotkin to give an additional comment on this issue and on taking into account the indexation.
ALEXEY ZABOTKIN:
Monetary policy does influence the exchange rate. Previously, this process was faster as the adjustment occurred more quickly owing to capital flows on the financial account. Today, this adjustment will continue, but this influence will be more extended over time as the mechanism of the impact of the key rate on the exchange rate will involve more stages. The key rate influences credit, credit influences demand, demand influences imports, and ultimately, imports influence the exchange rate. This impact does exist, but, as noted by Ms Nabiullina, monetary policy aims to ensure price stability, rather than to target any nominal exchange rate.
As regards the budget, we relied on the current estimates of the Ministry of Finance that had been publicly disclosed by the Minister of Finance in sufficient detail the day before yesterday. We presume that the announced figures, namely the increase in spending by four trillion rubles, take into account some assumptions of the Government with respect to the coming indexation of social benefits and other payments. We proceed from these macro indicators of the budget in our medium-term forecast which, in turn, underlies today’s decision.
ELVIRA NABIULLINA:
An increase in insurance payments to two million rubles is not under discussion, but this issue is beyond the mandate of the Central Bank.
QUESTION from the Tolk portal, Barnaul:
My question is about the construction industry. Developers, at least those working in my region, say that housing construction can function sufficiently well when the interest rate on mortgage loans ranges from 3% to 7% — their estimates vary. They say that it is almost impossible to work when the key rate is as high as it is now, even with the government programmes in place. Is it possible to say that the key rate is actually a barrier for large-scale mortgage lending?
ELVIRA NABIULLINA:
Let me give you an example: in 2021, the mortgage rate was
Indeed, interest rates are higher now, and many banks raised them when this situation occurred, raised them considerably. However, as regards mortgage rates, which are long-term ones, it is essential that banks have confidence in the Central Bank’s policy towards lower inflation as they are guided by, among other things, long-term rates on risk-free investments, e.g., in federal government bonds.
Long-term rates show how confident market participants are in the Central Bank’s ability to control inflation and generally the inflation premium. This is why it is very important. Aiming to lower inflation and bring it back to the target, our policy will create conditions for expanding mortgage lending.
However, during the period when interest rates are high, there is certainly high demand for subsidised loans. We are perfectly aware of this. We have discussed the subsidised lending programme with the Government in order to support subsidised lending.
I would like to ask Mr Zabotkin to give an additional comment.
ALEXEY ZABOTKIN:
I would just emphasise what Ms Nabiullina mentioned in her statement. Interest rates on federal government bonds have already returned to the levels recorded in late January—early February. In other words, with respect to medium- and long-term rates, we are actually already in a situation that was before the key rate increase. This demonstrates very clearly that in fact the level of the key rate cannot be directly extrapolated to the cost of credit in the economy.
To the contrary, if we had not raised the key rate and if inflation had not started to decelerate after March, I assure you that long-term rates would have been at a completely different level today. The only way to make both mortgage loans and long-term investment resources affordable is to ensure moderate medium- and long-term interest rates.
QUESTION from Frank Media:
My question is about long-term investments made by individuals. Before the start of the military operation, the Russian President gave an instruction to encourage long-term savings. In particular, such ideas as individual investment accounts of the third type and the co-financing of non-governmental pension coverage were under discussion. Is this issue still on the agenda? Previously, it was the resources of the National Wealth Fund that were discussed for the co-financing of non-governmental pension coverage. Have these ideas been detailed in any way and how relevant are they for you today?
ELVIRA NABIULLINA:
I believe that individuals’ long-term investments remain a topical issue, and the ideas regarding individual investment accounts of the third type are still relevant. However, we have not carried out extensive discussions during this period, of course. I think we will start the discussion in the near future.
QUESTION from Forbes:
As far as we can see, the ruble exchange rate has not responded to the unscheduled reduction in the key rate, in contrast to deposits and loans where changes were very significant. My question is associated with this information. Does the Bank of Russia plan any moves to decrease the key rate faster in order to mitigate the economic decline, while preserving the foreign exchange restrictions to maintain the stability of the exchange rate?
ELVIRA NABIULLINA:
Indeed, as I have said several times today, the exchange rate strongly depends on exports and imports. However, there is an important aspect in this regard. These two measures are not contrary to one another because we introduced the capital controls not to target any specific exchange rate or strengthen it purposefully in order to lower inflation — to achieve this, we would rather reduce the key rate. We introduced these controls in order to mitigate risks to financial stability. The FX restrictions are not about monetary policy, that is, when we discuss monetary policy, we discuss the range of possible decisions within the parameters of the capital controls that are now in place. Hence, there is no choice here for the Board of Directors when we make a decision. We make a decision on the key rate based on our forecast of inflation, the economic situation, and the situation in the labour market, while considering the existing FX restrictions.
I would like to stress once again that the FX restrictions were introduced because of risks to financial stability, they substitute FX interventions. We have lost the opportunity to carry out FX interventions. In these conditions, we need these FX restrictions in order to stabilise the situation.
We did not conduct FX interventions to target any specific exchange rate, strengthen it, or lower inflation. We acted by changing the key rate instead. Currently, the logic remains the same, but we had to introduce these capital controls as we cannot carry out FX interventions. These measures are not contrary to one another, but may be Mr Zabotkin would like to add something.
ALEXEY ZABOTKIN:
There is hardly anything to add in this regard, but rather just another way to explain the same thing. It would probably be a mistake to consider that, after the introduction of the capital controls as a new instrument, the Central Bank has got more freedom of action in pursing its policy. This is only about losing one instrument in the form of FX interventions and introducing another, namely capital controls, which is less sophisticated, to be honest, but its aim is the same. This is why, as I have already explained, it would actually be not quite correct to say that in these conditions we have got more room for choosing an optimal path of the key rate.
Our monetary policy will ultimately influence the exchange rate. This will simply happen not instantaneously, not directly at the moment when we publish our press release and investors adjust their opinion about a fair or market exchange rate, but rather through this chain of influence on demand and imports. However, this chain is not very long either. This impact actually manifests itself in several months, rather than years.
QUESTION from Bloomberg:
If gas export to Europe terminates, what consequences for monetary policy do you expect? Have you studied a stress scenario for such a situation?
ELVIRA NABIULLINA:
This would definitely entail consequences for both the economy and the Bank of Russia’s monetary policy, and we should estimate when this might happen. Currently, it is very hard to work out all scenarios as there are multiple discussions and suggestions, but we are definitely making estimates for a stress scenario. We will also work out a risk scenario, but as usual we will present it in the Monetary Policy Guidelines to be released in August. Am I right, Mr Zabotkin, in August?
ALEXEY ZABOTKIN:
Yes, we will present scenarios with figures. We will work out in detail what scenarios to develop and how to specify them and present them in the second half of August when we will publish our draft Monetary Policy Guidelines. Technically, without reference to particular examples, a contraction of exports has a proinflationary impact in the short term through the effect on the exchange rate. In the longer run, this is actually a decline in external demand for Russian goods, and, accordingly, a disinflationary factor in the medium term.
QUESTION from the SHERGINA channel on Telegram:
Could you please say what instruments can households choose to preserve their savings now when deposit rates are significantly lower than inflation, the Russian stock market has become extremely risky, and foreign instruments are unavailable?
One more question, if I may. Do you have an idea of when the National Settlement Depository and Euroclear will be able to resume interaction as its absence causes difficulties for Russian investors?
ELVIRA NABIULLINA:
Indeed, there are multiple instruments. Their relative attractiveness may vary. Deposit rates were very attractive in late February—early March, but these were mainly short-term rates. Currently, deposit rates are dropping somewhat, but households do have access to other instruments which remain attractive amid slower inflation. We expect inflation to decrease. Hence, in terms of future inflation, interest rates remain attractive, in our opinion.
There are many securities, shares and bonds of Russian corporations that are traded in the market. When we opened the market, we could see considerable demand from Russian investors and they continue to demonstrate demand. It is definitely possible to use other savings instruments as well. Some prefer to make savings in gold. The range of savings alternatives is sufficiently wide. Their relative attractiveness might change over time. Therefore, investors should also certainly analyse all risks associated with their investments, whether in securities or in other assets. As to the National Settlement Depository and Euroclear, it is absolutely impossible to give any forecasts in this regard.
QUESTION from Saint Petersburg Vedomosti:
We are aware that a stronger ruble provides more room for manoeuvre to the Bank of Russia. As far as I understand, the market has not demonstrated any significant reaction to today’s decision, although analysts mostly forecast a reduction to 15% per annum, whereas the key rate was cut to 14%, and the exchange rate of the ruble is not declining either.
It seems that there is room for manoeuvre in the current situation and it would be logical to expect a further decrease in the key rate to 10% and, later on, to 9%, but you are still talking about the range from 12.5% to 14% on average over the year. Such a reduction seems to be quite small.
What is the reason for this? Have I got it right that an easing of the FX restrictions, namely the requirement for exporters to sell their foreign currency earnings, will now be a more important priority?
ELVIRA NABIULLINA:
A stronger ruble is one of the factors influencing inflation trends, but by far not the only one. Currently, inflation is much more strongly impacted by the possibility to expand supply, including imports, and the ratio between demand and supply.
As I have already said, we are not choosing between the two options and they are not contrary to one another: whether to apply FX restrictions in order to impact the exchange rate and thus reduce inflation, or accordingly achieve this by changing the key rate. We do not have such a choice. We make our monetary policy decisions considering that our objective is to lower inflation in the conditions of a structural transformation of the economy. Hence, these are not only and not so much the factors related to the exchange rate itself that are influencing this situation.
ALEXEY ZABOTKIN:
I would like to once again comment on the logic of the FX restrictions. Capital controls are an economic policy measure that has quite a distorting impact on the market. Actually, it complicates business operations, especially in external trade. This measure increases exchange rate volatility as it becomes impossible to effectively smooth out short-term fluctuations, including seasonal fluctuations mentioned by Ms Nabiullina.
Therefore, the reason for their introduction is risks to financial stability. As risks to financial stability go down, jointly with the Government, we will be probably reducing the scale of the FX restrictions progressively, to the extent that will be reasonable. However, this is a separate decision aiming to ensure financial stability, whereas monetary policy is determined based on the current level of the FX restrictions and the effect they have on our forecasts of the balance of payments.
I would like to add a few words about the extent of the decrease in interest rates. I would like to remind you that our forecast tables give the forecast range of the average key rate over the year, and currently this range is from 12.5% to 14%. Basically, the actual level of the key rate at any specific moment may be both within and beyond this range. I believe that analysts, if they have not done this yet, will soon draw the paths of the key rate that are in line with the ranges presented in the forecast. You will thus see then that this does not necessarily mean that the key rate will be kept above 12.5% until the end of the year.
QUESTION from Interfax:
My question continues the topic of a possible consolidation of VTB Bank, Otkritie, and RNCB. Could you please explain the logic? It seems to be a quite unexpected decision considering the statements made by the Central Bank after the establishment of the Fund of Banking Sector Consolidation, namely about market-based sales to investors.
Obviously, the conditions have altered today, but there is a sense that the Central Bank has quickly abandoned its plans to sell Otkritie shares in any other way. Do you see any risks of nationalisation?
And I have another question in this regard. Do you see a future trend towards consolidation of the banking sector, of some small players, and do you assume that a part of foreign players will exit the market? What will be the landscape? If the banking sector was previously criticised mostly for a large share of the Government, how will this situation change in the future? Is it possible that, to the contrary, the proportion of private players will increase, considering that they are less exposed to the risks of sanctions?
ELVIRA NABIULLINA:
As regards this transaction, I would like to explain once again the logic behind our decision: I can see no opportunity for market-based sales of Otkritie in the foreseeable future. What does this mean? Bank Otkritie has already been included in the public sector. This is not nationalisation, but only its transfer to the Government. We will eliminate the conflict of interest that many market players were talking about. However, we said earlier that this was a temporary conflict of interest because we were ready to sell Otkritie to market players in a little while. At the moment, we do not see any opportunity for market-based sales. Considering this, we believe it correct for the regulator not to remain the owner of Otkritie for an indefinite period.
As regards consolidation, such processes are quite possible and might happen. Generally, we should definitely expect serious changes. They are already occurring in the banking sector. However, as before, our priority is to ensure further development of the private banking business and possibilities for private investors to buy some banks’ shares at attractive prices.
Thank you.