Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting on 10 February 2023
Good afternoon,
Today, we have made the decision to keep the key rate at 7.50% per annum.
The situation has significantly changed recently. On the one hand, foreign trade conditions have worsened notably as Russian crude prices went down. On the other hand, the situation in the economy is developing better than expected in the October forecast. The structure of demand continues to alter: consumption remains subdued, the growth of private investment is slowing down, whereas budget expenditures are increasing. Besides, proinflationary risks have risen overall. In view of this, the key rate is more likely to be raised rather than cut this year. The rationale for changing the key rate will depend on future developments.
I would now dwell on the reasons behind our today’s decision.
Inflation trends remain moderate.
By the moment, we do not yet have complete statistics on inflation in January, but weekly data show that current price growth probably sped up in January, reaching the maximum rate since April 2022 (leaving out the periods of the indexation of administered tariffs). This acceleration is primarily associated with volatile components such as fruit and vegetables, but more steady components, for example, prices for services, are also contributing to it.
Overall, the growth of prices for steady components of inflation is still moderate, according to our estimates. This is largely explained by subdued consumer demand. Household spending for large purchases, namely real estate, cars, repairs, and foreign travel, has declined amid changes in supply and high uncertainty. Some households prefer to save these funds instead as the propensity to save is now high. Nevertheless, there have been emerging signs of an improvement in consumer sentiment recently.
A revival in consumer activity may be driven by inflation expectations that remain elevated. Companies’ price expectations also stay considerably above their multi-year averages. Inflation expectations included in interest rates on federal government bonds also exceed the inflation target.
Despite a gradual increase in current price growth rates, annual inflation will considerably drop in the next few months due to the base effect. As we have already said, annual inflation will very likely drop even below 4% in spring from today’s 11.8%. However, this will not reflect current inflation trends and will only be because the high rates, when prices peaked in March—April 2022, will be excluded from the calculation of annual inflation.
The structural transformation of the economy, the completion of the pass-through of businesses’ higher costs to consumer prices, and the existing external trade restrictions will still affect price growth this year. Our monetary policy takes this into account. It is aimed at stabilising inflation close to the target of 4% in 2024 considering the extent of the impact of these factors on the economy.
Major structural shifts in the economy are still underway.
We have improved our GDP forecast for this year. This is associated with an upward revision of the assessments for previous periods, on the one hand, and with higher budget expenditures than assumed in our October forecast, on the other hand.
Structural changes in the economy cause a steady expansion of output in a number of sectors, while others are facing a decline in their output. The former include, among others, some manufacturing sectors and construction that are ramping up their output. Transportation infrastructure is quickly developing, with government investment becoming increasingly important in this industry. Contrastingly, investment projects in the private sector can be suspended or decreased because the required equipment is unavailable or companies are uncertain about future demand. The contribution of budget expenditures to aggregate demand dynamics is growing overall.
A major indicator of structural shifts in the economy is the labour market. Unemployment has declined to its record low. Staff shortages in agriculture and construction are becoming more acute. As to Russian regions, staff shortages are most serious in the Urals and Siberia due to the expansion of the industrial sector in these regions, as well as in the Far East where new logistics and trade infrastructure is being built.
Structural changes inevitably entail higher costs in many sectors. Detailed analytics on this topic are available in the February issue of the Regional Economy report prepared by the Bank of Russia’s main branches. Nonetheless, the pressure put by higher costs on prices will be weakening gradually. Already now, we can observe some improvements in logistics, specifically in the transportation of imported goods from Far Eastern seaports to European Russia.
Summing up, it is possible to say that the economy is actively adjusting to the current developments. Our assessment of the GDP decline over 2022 is 2.5%. This year, GDP is forecast to change from minus one to plus one per cent.
Now, I would like to speak of external conditions.
Global recession risks have decreased. There are three factors that have improved sentiment in world markets. The first contributor is the reopening of the Chinese economy after the country lifted its coronavirus restrictions. The second driver is that central banks in advanced economies, which are striving to bring down their inflation rates, are now close to the peaks of their policy rates. The third factor is a reduction in energy commodity prices, first of all in Europe. All this has a favourable effect on developing market economies, including Russia’s key trading partners. However, the positive influence of these developments on Russia will be restricted by the sanctions.
As compared to our previous forecast, we have revised the impact of the sanctions on Russian crude. The Russian oil sector was adjusting to the changes in December—January by decreasing prices rather than output. Today, the Government has announced that, beginning from March, Russia will voluntarily reduce oil production by 500,000 barrels per day. We will monitor how this decision will be influencing oil price trends. Nevertheless, we have lowered our forecast for oil prices in 2023, as compared to October. As before, we publish the forecast Urals crude price in the table with the forecast. However, when preparing our macroeconomic forecast, we now take into account in greater detail that, after the enactment of the price caps, export prices for Russian oil significantly vary depending on its grades and shipping points. Accordingly, the actual average export price for Russian crude and its forecast might substantially differ from Urals benchmark prices. As to possible implications of the embargo on petroleum products, it was enacted just a few days ago, and its effects are still to be assessed.
We have revised our forecast of the balance of payments for this year. The forecast of exports has decreased, whereas that of imports, to the contrary, has been improved taking into account the trends of recent months. As a result, the forecast surplus of the current account for 2023 has been reduced to 66 billion US dollars. For the inflation forecast, this means a proinflationary shift caused by external conditions.
Monetary conditions have stayed neutral overall, although individual indicators have been changing diversely.
Since our December meeting, the yield curve of federal government bonds has shifted upwards by
The situation in the credit market has remained unchanged. The corporate loan portfolio continues to expand in a double-digit pace. This growth is partially associated with structural shifts, including the substitution of borrowings in Western markets that are now inaccessible.
The deposit market is stable. In our opinion, the accelerated growth of funds in individuals’ accounts in December was caused by an increase in budget payments, rather than a further rise in the propensity to save.
At the end of last year, companies received considerable funds from the budget to their accounts. At the beginning of 2023, this trend continued. The flows of budgetary funds will affect aggregate demand regardless of how they are being used. Even when budgetary funds are used to finance investment projects or make government purchases, a considerable portion of them is ultimately paid as wages to employees working at these projects and production facilities. The pace at which the impact of these budgetary flows will translate into price movements will depend on how quickly they will move into consumption.
The annual expansion of money supply continued to speed up in December—January. This was primarily driven by higher government expenditures at the end of last year and the rescheduling of a part of payments under state orders for the beginning of 2023. This earlier budget spending intensifies the impact of fiscal policy on aggregate demand in the first half of the year. The resulting effect on inflation will depend on changes in other components of aggregate demand. However, all else being equal, maintaining the same inflation path amid higher demand from the government, a greater contribution of the budget to the expansion of money supply somewhat reduces room for growth in credit to the economy.
I will now speak of the risks that might cause a deviation of inflation from the baseline forecast. According to our estimate, the balance of risks has shifted towards proinflationary ones even more.
In addition to the more significant impact of fiscal policy, which I have already mentioned, I should speak of three risks. First of all, this is a fast rise in consumption amid elevated inflation expectations, which is possible if the factors constraining consumer activity weaken. The second risk is increasing staff shortages and a slower growth rate of labour productivity as compared to that of wages. And finally, there is still a serious risk of a further tightening of the sanctions.
Winding up, I would like to comment on our future decisions.
Despite the strengthening of proinflationary factors mentioned above, our forecast of inflation for this year remains at
Thank you for attention.
Q&A for the Media
QUESTION from Interfax:
How important is the proinflationary effect of the budget factor, in your opinion? Was the federal budget execution in January a surprise for you, especially with regard to higher expenditures? How strongly has this influenced your decision to return to a rather tough signal in your statement and assume a possible increase in the key rate?
My second question is not quite about monetary policy. Currently, there is a discussion underway about the possibility of obliging companies to issue substitute bonds instead of Eurobonds. Do you think that it is worth establishing this obligation for companies or the issue of such bonds should rather be a recommendation? A conventional question: what options did the Bank of Russia consider today?
ELVIRA NABIULLINA:
As regards the proinflationary effect of the budget, public demand supports aggregate demand, and the effect of the additional expenditures funded in 2022 and the accelerated fulfilment of the state order, which is obvious from the January expenditures, might be significant. However, the ultimate response of our monetary policy to this factor depends on the level of aggregate demand in general, rather than solely on public demand, although its role and share are growing.
If public demand temporarily substitutes subdued private demand, which can be seen now, the effect on aggregate demand might be neutral. When the budget shifts towards a steadier and more considerable structural deficit, if this occurs, the potential for the expansion of private demand and credit to the economy decreases.
Currently, we rely on the decisions announced by the Government to gradually consolidate the budget. The decisions announced by the Government are reflected in the budget breakdown. By the way, it is published on the portal Electronic Budget.
Speaking of the size of the budget deficit, a lot will depend on macroeconomic developments and, of course, an additional deficit increases the contribution of public demand to aggregate demand thus affecting inflation.
In addition to the impact of changes in budgetary expenditures and, later on, changes in the budget deficit, which I have mentioned at the beginning, the distribution of these expenditures over time is important as well. If they are concentrated during certain months or quarters, this might intensify inflationary pressure during such a period, which might also push up inflation expectations and then entail secondary effects. Hence, we need to take this into consideration.
Besides, I would like to emphasise that the effect on inflation depends not on the time of allocations from the budget, but rather on the time when these funds are received by ultimate consumers, that is, when these funds are actually consumed and used to purchase goods and services. This might involve and does involve time lags, especially in the case of advance payments for government procurements, as we can see now.
However, we should speak of the effect extended over time, rather than of the lagged effect. Of course, the factor of fiscal policy is essential for analysing inflation trends and we will monitor how the situation will be unfolding and, accordingly, take this into account in the course of implementation of our monetary policy. I would like to repeat again that our monetary policy is aimed at bringing inflation back to the target in 2024.
As to the second question about substitute bonds, currently, this is really a recommendation. However, as regards substitute bonds, our focus is to effectively protect the rights of Russian bond holders. Therefore, we believe that it is necessary to proceed from recommendations to regulations and establish the obligation to issue substitute bonds in most cases. The situation might certainly be more complicated and there might be various implications in different situations, due to which it is probably necessary to provide for such an exception, but only after the need for such an exception is properly considered by the intergovernmental commission — this is our opinion.
Speaking of today’s options, we did not discuss key rate reductions. There were suggestions to raise the key rate, but nevertheless we reached the consensus to keep the key rate unchanged and to tighten the signal slightly. We did not consider the option of a key rate increase in detail.
QUESTION from TASS Agency:
I have two questions as well. Has the Central Bank’s forecast of the neutral rate remained unchanged at
And the second question please. As you expect a certain decrease in inflation in spring, what inflation peaks might occur during the year?
ELVIRA NABIULLINA:
Speaking of the forecast neutral rate, a steady increase in the structural budget deficit might technically cause a rise in the neutral rate as well. This is just a general comment. However, basically, we consider the nature of the neutral rate when preparing our annual Monetary Policy Guidelines in summer. This year, we will also consider this topic, including the need for updating our estimates. Nevertheless, updating the estimates does not always imply any changes in our view of the neutral rate. Hence, we will return to this question in summer.
As regards a reduction in the inflation rate, a slowdown in annual inflation — I am talking exactly of annual inflation — below 4% will be associated purely with the base effect. Later on, this base effect will be excluded from the calculation. Hence, we rather need to analyse current inflation movements and forecast inflation factors, and that is exactly what we are doing.
As to possible peaks, I would like to ask Mr Zabotkin to answer this question.
ALEXEY ZABOTKIN:
As you know, we prefer not to forecast monthly inflation. However, in terms of the overall trend, indeed, annual inflation dynamics throughout the year will significantly depend on the months of last year as they are excluded from the calculation of the annual rate.
In March—April 2022, inflation reached very high levels. Accordingly, when they are excluded from the calculation, annual inflation will very quickly go down, probably even below 4%. We will see this in April—May.
However, later on, the very low monthly price growth rates recorded in June, July, August and almost until the end of last year will be excluded from the calculation. Accordingly, without these low values in the calculation, the annual inflation rate will go up. We expect it to range from 5% to 7% as of the end of the year.
QUESTION from RIA Novosti:
Do you already have any projections regarding the quarter when GDP might turn positive this year? Anyway, do you consider that the probability of positive GDP as of the end of the year is higher than its forecast decline of −1%?
My second question is about the reserves. As we know, the Central Bank no longer releases granular data on the reserves. How probable is that you will resume and when might you resume the release of these data and can there be any changes in their structure or publication schedule?
ELVIRA NABIULLINA:
As regards GDP, its quarterly changes — quarter-on-quarter dynamics — were positive already in the third and fourth quarters.
Speaking of annual figures, we believe that GDP will turn positive in the middle of the year. As to the estimate of GDP over the year in general, the range that we forecast is symmetrical: from −1% to +1%.
Regarding the release of data on the reserves, we are currently discussing this issue, but at the moment I cannot tell you the dates.
QUESTION from Abakan.ru:
Not so long ago, the Bank of Russia stated that rising real wages were fuelling inflation. Does this mean that the regulator is against improvements in people’s life quality? Let’s live poorly and buy less — thus prices will not be growing and, accordingly, inflation will be low, which is everyone is aiming for.
ELVIRA NABIULLINA:
This is not quite true. Actually, this is completely untrue. It is just the opposite: we support a steady rise in wages. However, a steady rise in real wages is only possible when labour productivity is growing — otherwise, the rise in wages will be absorbed by inflation.
What we emphasise is that such a rise in real wages cannot be steady when labour productivity is lagging behind wage growth. A worker’s income might increase steadily only if it is accompanied by an expanding output of goods manufactured by the worker. Otherwise, everything will be absorbed by inflation and, ultimately, the worker’s real income will plunge as the output of manufactured goods will simply be smaller. This is exactly a situation where people will become poorer than now.
QUESTION from RBC:
My first question is related to the Government’s initiative regarding the one-time payment of contributions to the budget from the revenues that Russian businesses earned in 2022. Does the Bank of Russia participate in the discussion of this initiative, does it support this initiative or not? Would the implementation of this initiative reduce the risks of a budget deficit expansion and influence inflation in any way, in your opinion?
My second question is about increasing banks’ capital. Last year, the Bank of Russia forecast that, in 2023, banks would need about 700 billion rubles to increase their capital. Does this amount include the increase in VTB’s capital of 500 billion rubles? If not, what is your new forecast for the increase in banks’ capital for this year?
ELVIRA NABIULLINA:
Speaking of possible voluntary contributions from companies to the budget, this is fiscal policy, and this is why we do not participate in its discussion. If this decision is made, we will take it into account in our monetary policy.
As regards the increase in banks’ capital, first of all, we do not give comments on any particular bank. However, our forecast, our estimate of the potential need for a capital increase definitely covered all large banks, almost all banks.
Today, the estimates of the need for a capital increase might be reduced. We have not made any specific estimates, but, analysing the overall situation in the banking industry, we can say that this need might be lower than the estimates given before.
QUESTION from Kommersant:
My question is about unemployment. The Central Bank does not present any separate forecasts on the situation in the labour market. Nonetheless, it seems quite obvious that, currently, unemployment is declining faster than assumed before and to a lower rate?
Do you think that there is a certain unemployment rate that would multiply the effects from low unemployment, that are actually negative, in some regions making these effects dangerous? What is the current situation with employment, as opposed to unemployment? Don’t you plan to give any separate comments exactly on the situation in the labour market as your press release especially focuses on these particular circumstances?
ELVIRA NABIULLINA:
Indeed, the situation in the labour market is an important indicator of what is happening in the economy, including of structural changes, and it does affect our assessment of proinflationary and disinflationary risks. We can see that unemployment has dropped to its record lows. It is still unclear whether it will continue to decline as there is always a certain rate of structural unemployment when mobility is low.
Besides, even if unemployment does not decline further, tightness in the labour market might increase and staff shortages in certain industries might become more acute. This is also associated with the structural transformation of the economy as the demand for labour starts to go up in the sectors that are actively expanding. Of course, we are closely monitoring this situation. We will think of whether it is worth giving such estimates, but this is certainly an important factor.
Mr Zabotkin, do you have anything to add?
ALEXEY ZABOTKIN:
The employment rate is growing, and unemployment is not just going down — it hit its record lows. Moreover, this is not just about the general unemployment rate, but rather about broader indicators of the so-called part-time employment that Rosstat measures as well and that we do factor in when preparing our forecast and discussing key rate decisions.
What the Governor said in her statement is that, ultimately, if labour productivity lags behind growth in real wages, the output of goods will be insufficient to fully meet expanding demand.
Eventually, this will translate into faster inflation, and it is the main channel of the impact of the labour market on price stability and people’s welfare. If inflation totally absorbs the rise in nominal wages, people will not benefit from this high employment.
QUESTION from the Life and Invest project:
There is a fund from the FinEx management company, which is a fund of Russian assets, and currently this fund cannot resume its work as it is actually unfriendly.
Is there any chance that the fund will be able to resume its work? Dividends that the fund receives and should be reinvested, but at the moment cannot be reinvested, are credited to
Is there any mechanism for investors to redeem these funds’ units, possibly, or for the fund to resume its work?
And question two, please. In January, media reported that the Ministry of Finance and the Central Bank had sent a suggestion for a buyback of the bonds that had been transferred from a foreign infrastructure to the Russian infrastructure and that this mechanism might provide for a buyback with a discount from Russian investors. Are you still considering this option now and what are the reasons behind such a suggestion?
ELVIRA NABIULLINA:
As regards the resumption of funds’ work — I will not comment on any specific fund — generally, if a fund operates in a foreign infrastructure, it needs both a decision from a foreign regulator and a decision from the Russian regulator to be allowed to resume its work.
It can receive our permit if it complies with one of the key requirements, that is, if it ensures a transparent system of settlements that will guarantee all payments that Russian investors shall receive. Our priority here is to protect Russian investors.
Speaking of a possible buyback of the bonds, as early as last August, the Bank of Russia made the decision on the so-called quarantine for six months for those securities of Russian issuers the accounting of which is returned from a foreign infrastructure to the Russian infrastructure in order to ensure financial stability. At the end of December, this quarantine was extended for another six months and, thus, the requirements for the separate accounting of these securities remain effective. As to the buyback of these bonds, such ideas have really been put forth, but there is no detailed discussion on this issue at the moment.
QUESTION from Rossiyskaya Gazeta:
My question is about the statement made by the Ministry of Finance that the share of the euro in the structure of the National Wealth Fund would be zeroed out during the year. Will this have any effect on Russia’s monetary policy?
My second question is rather rhetorical. Considering, possibly permanent external sanctions, would not it be reasonable to change the inflation target? Although inflation will drop below 4% in spring due to the base effect, would not it be reasonable to raise the inflation target?
Besides, I have a question about the Central Bank’s signal. The regulator has toughened its rhetoric, and economists are already interpreting the Central Bank’s signal as a possible further increase in interest rates on bank loans and deposits. How would you comment on this?
ELVIRA NABIULLINA:
Speaking of the impact of the zeroing-out of the euro holdings by the Ministry of Finance, this does not affect our monetary policy in any way.
As regards changing the inflation target, the sanctions do not impact changes in the inflation target. We are going to carry out a monetary policy review soon and will consider the issue of the inflation target as well, but what is at issue is not an increase in the target, but rather a possible reduction in the inflation target, a change in its format and so on. As far as I remember we have published the plan of this review that we will follow. Generally, we consider it very dangerous to modify the target in such a manner. This is actually like shifting the goalposts in the middle of the game, you know.
We are returning to the inflation target of 4% gradually because of the time our economy is going through and its structural changes, but our current inflation target remains the same, that is, 4%. I would like to repeat that this is the base effect that might cause a decrease in annual inflation below 4%. Our objective is not just to reach this level of 4% only once, but to steadily maintain inflation at a rate close to 4%. This is what makes credit rates more moderate and extends loan maturities.
Speaking of the impact on credit rates, of course, they are affected not only by the key rate, but also by market participants’ opinion about the path of the key rate. However, there are also other factors that have an effect, including long-term inflation expectations, if we are talking of long-term loans.
I believe that banks will assess risks of particular borrowers and take all this into account when determining their transfer curves.
QUESTION from
We have learnt from unofficial sources that commercial banks are preparing for a key rate increase by the Central Bank. Among other reasons, this is associated with the 30% reduction in oil and gas revenues in January.
The forecast specified that the key rate would be at the level of up to 7% this year. Why do financial market participants lack confidence in the Central Bank’s decision? What should they rely on, in addition to the forecast of the Bank of Russia?
ELVIRA NABIULLINA:
Firstly, our previous forecast of the average key rate for this year was
Today, we have adjusted this forecast of the average key rate for this year to
However, when companies are making decisions on investment projects or business expansion and households are deciding on consumption and savings, of course, a key indicator is inflation expectations and price stability, rather than our key rate.
Hence, it is critical for us to return to our target in order to ensure people’s and businesses’ confidence in price stability.
Mr Zabotkin, do you have anything to add?
ALEXEY ZABOTKIN:
I would like to say just a few words. Figuratively speaking, low inflation, the target of 4%, is where we are moving to and where we are striving to maintain the economy. In this context, if we think of the economy as of a ship, the interest rate can be spoken of as a steering wheel. The pilot sets the course, and the steersman maintains the course. Actually, the reference point of this course is the forecast.
However, if a storm occurs, or the weather forecast changes, or there is another vessel blocking the way, the course needs to be adjusted. Accordingly, the steering wheel should be turned, and this is exactly how the key rate is changed, but the course is also adjusted, which means an adjustment of the forecast.
QUESTION from the Invest Future project:
My first question is about the labour market. The Russian labour market is frequently spoken of as a robust one. However, Rosstat has released statistics showing that hidden unemployment is growing.
I would like to find out whether the Bank of Russia considers this hidden unemployment when making its decisions and preparing its forecasts?
Is this level really high now or is it associated with some factors that actually have no effect on the economy?
My second question is about the oil market. Today, there is quite an acute issue relating to the calculation of the price for Russian crude, specifically, what should be considered as a benchmark. There were suggestions last year about developing new benchmarks.
What does the Central Bank factors in today when making its forecasts? What should analysts, investors and simply households rely on now as a benchmark price? Is there any relevant indicator for this at all?
ELVIRA NABIULLINA:
As regards the labour market and hidden unemployment, we factor in multiple indicators. I would like to ask Mr Zabotkin to give an additional comment.
ALEXEY ZABOTKIN:
I have already commented briefly on this issue. Indeed, in addition to the general unemployment rate, Rosstat also publishes broader indicators of the so-called part-time employment. Possibly, these are the indicators you are talking of as hidden unemployment. Rosstat measures them quarterly based on a wider survey, compared to the conventional unemployment rate. However, just as the main unemployment rate, these indicators dropped to their record lows as of the end of the third quarter. In other words, the figures that are not seasonally adjusted possibly rose, but after the seasonal adjustment, it is obvious that they dropped to their minimums in the third quarter, just as the main unemployment rate.
We analyse these indicators in detail when discussing the current economic situation. We believe that they confirm the opinion that the labour market is now quite saturated in terms of employment. According to our regional main branches that communicate with businesses directly, there is a whole range of industries that are facing increasingly growing staff shortages.
ELVIRA NABIULLINA:
As regards the calculation of the oil price, indeed, this issue has become urgent because the Urals benchmark does not currently reflect the actual price of Russian crude exports since the export through different seaports and to different destinations might vary and we can see how strongly these prices have diverged by the moment.
Therefore, we factor in and analyse this within our forecast. The issue about the benchmark is really topical, and you are absolutely right here. I know that the exchange, including the Saint Petersburg International Mercantile Exchange, is currently working on such a benchmark. We take part in these discussions, and this issue — the possibility for analysts to use such a benchmark — is certainly very important.
QUESTION from Bloomberg:
Your colleagues—economists Oleg Vyugin, Evsei Gurvich and Oleg Itskhoki, published a large report on the Russian economy, describing the current situation in Russia as an atypical crisis.
In a nutshell, the economy has been rescued by abnormally high budget revenues from energy exports that have produced the effect of super-income mobilisation.
However, they believe that, as revenues fall, the economy will continue to face the same set of problems that are characteristic of a standard economic crisis: investment hunger, devaluation, chronic budget deficits and contraction in demand.
In their opinion, all this will start already this year. Do you agree with your colleagues or not? Is there such a risk? This is my first question.
My second question is about Euroclear. European banks for settlements currently receive quite high interest on these frozen Russian assets which is not redirected anywhere at the moment. They have received 821 million US dollars as interest on the Russian funds that have been blocked there. Is Russia making any efforts to return these funds? Will it claim this interest?
And another short question please. You have already commented that you will be monitoring the situation with the reduction in oil production. Did the Government consult with you when making this decision and, generally, what are the risks and possible economic consequences of this step?
ELVIRA NABIULLINA:
Speaking of the assessment of the situation and prospects, first of all, I believe that, in addition to the factor that you have mentioned, that is, higher export prices for Russian commodities, a crucial factor for the stability of the Russian economy has been the fast adjustment of the Russian economy and many market players. For instance, they have been able to find new logistics routes and new manufacturers. We can see how quickly the import has been recovering, surpassing our expectations. Therefore, all these factors have played an important role for the stability of the Russian economy. These enterprises have been working on a market basis, and this is exactly what has played a significant role for such adaptation of the economy.
As regards various issues relating to investment trends and fiscal policy, indeed, the role of public investment is now growing. However, I proceed from the fact that, as we know, the Government is currently developing measures to promote private investment.
Of course, this depends on how businesses estimate demand prospects and, generally, the level of certainty or uncertainty of the situation, but private investment is an essential factor.
The Bank of Russia in turn is doing everything possible for the financial market to become one of the sources for private investment.
As to the budget deficit, we can see that the Government is implementing a policy aimed at a gradual budget consolidation, and we take this into account.
Therefore, we do not expect any serious adverse consequences or changes in 2023.
Speaking of the situation with Euroclear and the frozen assets, we are taking efforts in all areas in order to protect both investors’ rights and our own rights to the assets, and are carrying out preparatory work in this regard.
As to the reduction in oil production and the decision made by the Government, no, this is the competence of the Government and it made this decision at its discretion.
We will continue to assess the economic implications of this decision. Of course, it might have an effect on prices, output and exports, but such an assessment will take time. Most likely, we will prepare such an assessment for our next core meeting in April.
QUESTION from Fomag.ru:
My first question is about the banking sector as analysts and a large number of experts are unanimously very optimistic about the prospects of the domestic banking sector this year and, moreover, for almost all market players in general. Is the situation in the industry really so good or is this simply caused by a certain lack of information due to insufficient disclosures?
My second question is about the yuan bonds of domestic issuers. Will this market develop further and will any new instruments appear there, or is it only a certain temporary phenomenon?
ELVIRA NABIULLINA:
As regards the situation in the banking sector, it really faced serious challenges, but has managed to maintain its stability. The banking sector has not only remained stable, but it has managed to avoid a contraction in lending that continued to grow.
This is largely the result of the capital cushions, the so-called buffers accumulated over previous years. We granted regulatory easing. Nevertheless, we are gradually tapering these regulatory easing measures and have already discontinued many serious easing measures, except for, possibly, the additional buffers for capital adequacy ratios, the so-called macroprudential buffers. We allowed banks to create them gradually during five years, but this is totally natural as such buffers enable banks to accumulate these capital cushions during favourable years. They are absorbed during crisis periods, but then are accumulated again gradually. This is not related to the most basic capital ratios.
Speaking of a deficit of information, we do understand that disclosures are essential and we have agreed that we will start disclosing information beginning from the first quarter. Some items will be aggregated in this reporting, but the indicators of financial standing will be clear.
As to the yuan bonds of Russian investors, indeed, this market is developing. I do not think that this is sporadic as interest in such instruments is growing. As to further trends, we will see how this market will be developing, but I do not think that this is an episodic, temporary phenomenon. Probably, yuan instruments will make up a certain share in the Russian market.
QUESTION from Argumenty i Fakty (Orel):
I have the following question. What is the reference currency to estimate the value of the ruble now? Usually, we compare the ruble against the US dollar or the euro, but probably it would be now more correct to compare the ruble against another currency, for instance the yuan. What is your opinion?
ELVIRA NABIULLINA:
If we speak of the position of the ruble broadly, this is its purchasing power that matters. I mean the power to purchase goods and services for rubles, rather than a certain amount of US dollars or euros.
Thus, it would be more appropriate to make a comparison with your consumer basket. This is why we are seeking to achieve price stability in order to avoid a reduction in the purchasing power of our national currency, its depreciation.
By the way, we can see that, when various currencies are chosen for international settlements, the priority to a particular currency is given not only if it is widely used, but also if it has a history of low inflation and does not depreciate. This is also crucial.
As to external trade, the position of the ruble should probably be assessed in the basket of those currencies that are used in trade, accordingly.
QUESTION from Vedomosti:
How would you comment on the news in some media that the Government was putting pressure on the Central Bank trying to persuade it to give more optimistic forecasts and to signal its readiness to ease monetary policy already in 2023?
ELVIRA NABIULLINA:
We are implementing our monetary policy independently, making independent key rate decisions. I believe that this is the only way to be able to control inflation, and the Government is perfectly aware of the importance of price stability for economic development.
Of course, we do communicate with the Government regarding a wide range of issues and exchange our opinions about the situation and our forecast estimates.
We factor in the Government’s policy, first of all fiscal policy, in our monetary policy. I know that the Government also takes into account our policy in its policy and fiscal policy.
QUESTION from the Russia 24 channel:
I would like to ask you about the prospects of using cryptocurrencies in national settlements. The Central Bank has always seemed to be rather cautious about the idea of cryptocurrencies, but it has been reported recently that Russia and Iran might create such a stablecoin linked to gold. As far as I understand, this will require changes to laws. What is the timeframe we can talk about in this regard? When can we really observe the use of cryptocurrencies in national settlements? What are the pros and cons for the economy, in your opinion?
ELVIRA NABIULLINA:
Our opinion on this issue remains the same. We do not support the use of cryptocurrencies in the national market and in internal settlements. If domestic economic agents find it convenient to use cryptocurrencies in external settlements, we are ready to let them do this.
As to various stablecoins and the possibility of using them in bilateral settlements with different countries, this issue needs to be thoroughly explored. Of course, such issues are still far from any specific suggestions.
QUESTION from the Profinansy project:
My question is about the digital ruble and the time of its launch. When will households be allowed to use their digital wallets?
ELVIRA NABIULLINA:
We are currently at the stage of piloting of the digital ruble. We have engaged more than a dozen of banks that are actively participating in the piloting. This year, we are going to start its piloting on real transactions and real clients. To this end, we will need amendments to laws. We have prepared these amendments, and they are currently under discussion. We hope that the State Duma will consider them soon, after which it will be possible to begin the piloting of the digital ruble in real life and then to start its stage-by-stage adoption. Nevertheless, this process will be very gradual.
QUESTION from NTV channel:
What can drive GDP growth this year, considering that the effect of the oil sanctions is not quite clear yet?
And question two, please. Mass media reported that foreign banks might be allowed to open their branches in Russia. What is your opinion about this idea? At what stage is the discussion of this issue now?
ELVIRA NABIULLINA:
I would like to ask Mr Zabotkin to answer the first question.
ALEXEY ZABOTKIN:
You are totally right saying that the effects of the sanctions on the oil sector is still to be assessed. Partly, this is one of the factors why we estimate GDP growth for this year in the range from −1% to +1%.
Nevertheless, as Ms Nabiullina has already said, we can observe consistent growth from quarter to quarter in the economy already as of the end of both the third and fourth quarters of 2022. The growth, that is attributed partially to the recovery and partially to the adaptation, will continue throughout the year. Accordingly, there will be an increase in 2023 Q4 against 2022 Q4. As to the overall result over the year, it will depend on a specific combination of factors.
ELVIRA NABIULLINA:
Speaking of granting permits to foreign banks for opening their branches in Russia, we are generally positive about this idea. However, these would be primarily branches that will carry out settlement and payment transactions without raising retail deposits. Currently, such a draft law is under discussion.
QUESTION from Frank Media:
There has been the first incident of, so to say, developers’ response to the Central Bank’s restrictions on loans issued at close-to-zero interest rates. Developers have started offering a cashback. Technically, the scheme is the same: an apartment is more expensive, and people raise mortgage loans to purchase it. How are you going to respond to such schemes? Probably, it is worth introducing some measures in relation to lending banks. Could you please comment on this issue?
One more question, if I may. At the end of 2022, credit history bureaus reported a reduction in the percentages of approved consumer and mortgage loan applications. How would you assess this trend? Can this be considered a problem or a critical factor? Or, vice versa, do you support banks’ cautious approach to their customers?
And the last question, please. Currently, there is a discussion underway about the repayment by Sberbank of a part of the subordinated anti-crisis loan. Does the Bank of Russia expect that these funds will return to the banking system and, possibly, will be used to support any other state-owned banks?
ELVIRA NABIULLINA:
As to various schemes used by developers, you are totally right saying that there are now new cashback schemes. By the moment, there have been only a few cases. Nevertheless, we are ready to implement regulatory measures in this regard: just as mortgage loans from developers, these schemes also involve risks. Generally, I would like to say that we are certainly concerned about the fact that such schemes are multiplying. As soon as one scheme is ended, there is another one emerging. Of course, it is possible to act taking regulatory measures, as we are going to do. However, if these schemes multiply, we will insist on amendments to laws allowing households’ funds in equity construction contracts only according to the standard schemes stipulated by laws, without any deviations, because any methods to circumvent the requirements through these schemes ultimately involve risks for borrowers.
I would like to repeat that if such schemes appear now and multiply, we will suggest this initiative and insist on allowing only the standard schemes.
Speaking of loans and banks’ cautiousness, first of all, I would like to say once again that lending has not contracted. Indeed, we had a decline in lending last spring, but then it started to bounce back quite fast.
Corporate lending last year even exceeded the figures of 2021, namely 14%, although there is a certain share of loans that companies raised to substitute foreign borrowings.
Despite the preceding slump, mortgage lending also expanded by 20% over the year. This is a very high figure. In recent months, mortgage lending recovered its average growth rates recorded in
The issue we are concerned about is the quality of these loans. We are monitoring the quality of these loans and can see that there is an increasing percentage of loans to over-indebted borrowers in unsecured consumer lending where the recovery has been weaker, but these are high growth rates in this segment that were previously a matter of concern for us.
As to mortgage lending, we can also see certain shifts there. For instance, the proportion of loans for new housing with a down payment below 20% has already reached 69%, whereas a down payment characterises a borrower’s reliability, and so on.
Therefore, we will analyse this very attentively and, where necessary, will take macroprudential regulatory measures available to us in order to ensure the appropriate quality of loans. Otherwise, this might ultimately entail problems for borrowers, social problems. This is why, we certainly need and carry out such monitoring, and we are ready to respond promptly by taking macroprudential measures.
As to the subordinated loan, you probably mean a loan from the Government. That should be its decision. We would certainly prefer that these funds return as capital to the banking system strengthening banks’ capital base. Of course, we are always interested in this.
QUESTION from BelPressa (Belgorod):
Throughout 2022, the Bank of Russia was noting an increase in consumers’ propensity to save. How has this factor contributed to the reduction in proinflationary risks?
And another aspect. Does not the strengthening of this trend involve additional risks of a collapse of demand in certain industries or segments of the economy?
ELVIRA NABIULLINA:
A high propensity to save really causes a decline in consumer demand, all else being equal. This was a critical factor that was limiting price growth rates over the second half of last year when they were really rather low.
However, now, we can already see signs of a revival in consumer activity, and they were especially notable in January—early February. Leading indicators show an expansion of consumer activity. In our baseline forecast, we assume that the saving ratio will be gradually decreasing during this year.
However, I would like to note in this regard that any assumptions relating to people’s behaviour, for instance, their propensity to save or consumer demand, are associated with increased uncertainty, and trends can quickly reverse, if we are talking of inflation, particularly when inflation expectations are elevated.
Indeed, although consumers are still very cautious now and this can even out proinflationary risks through the other channels we have spoken of, we should nonetheless closely monitor these trends because they might reverse.
QUESTION from URA.RU:
Since the Central Bank’s previous meeting on the key rate in December, the ruble has weakened against the US dollar by approximately 13%.
Could you please comment how this is affecting inflation and whether the Bank of Russia will respond if the ruble continues to depreciate as quickly? Observing this situation, more people start thinking of buying foreign currency, probably if not US dollars, then friendly countries’ currencies. Could you please give a recommendation what decision they should make?
ELVIRA NABIULLINA:
As regards the movements of the exchange rate, of course, it does affect inflation. A strengthening of the exchange rate is a disinflationary factor, whereas its weakening is a proinflationary factor. This process has a time lag. The depreciation of the ruble last year has already largely passed through to prices. Probably, this process is not complete yet and will continue: the lagged effect will last for another six months, according to our estimate.
We take into account the movements of the exchange rate when making our key rate decisions, but this is not the only factor. For example, where the dynamics of the exchange rate involve proinflationary risks, there can be other factors as well — disinflationary ones that might have a stronger effect. In such a situation, the exchange rate will not be a factor for raising the key rate. In other words, we consider the combination of risks in general, the entire combination of factors.
Speaking of the currency to choose for savings, we are doing everything possible to make ruble holdings profitable, to prevent the depreciation of savings in rubles.
Would you like to add anything, Mr Zabotkin?
ALEXEY ZABOTKIN:
A very important point is that the exchange rate is a critical variable, but it influences monetary policy decisions to the extent it influences inflation expectations. Accordingly, if we take the recent measurement of households’ inflation expectations in January, for instance, we would see that inflation expectations declined compared to December and, in December, there was a slight decrease from November.
They are still elevated, and the weakening of the ruble in December probably limited their faster decline. Nevertheless, we should admit that the response of inflation expectations to the movement of the exchange rate that happened in December can hardly be considered excessive to any extent.
QUESTION from the Law and Invest project:
Do you have any news about the unblocking of the foreign assets? You have mentioned that you are carrying out preparatory work. Could you give any details as the one-month period, to put it that way, expired on 7 January, but there is neither an official refusal nor a positive result so far, right? Could you please comment on this issue?
ELVIRA NABIULLINA:
Indeed, we are carrying out work in this area. There was a decision of foreign regulators concerning the possibility of such unblocking. The absolute majority of investors managed to submit relevant applications in due time, but have not received any replies yet. Of course, we are interested in resolving this problem.
QUESTION from CGTN Russian (China’s media):
My first question is about the sanctions. There is a risk that the inflow of foreign currency into Russia might shrink. If this happens, how can it affect our banking systems, namely inflation?
And question two, please. Does Russia have sufficient reserves of Chinese yuan to stabilise, so to say, the financial system?
I’ve got another question to continue the topic of the digital ruble. As we know, China has quite a successful experience with the digital yuan. Are you carrying out any negotiations or communicating in any way with China to, possibly, use its experience, among other things?
ELVIRA NABIULLINA:
Speaking of the impact of the sanctions, we consider it through the balance of payments. This affects exports, imports, and in turn the current account. This affects the exchange rate and, accordingly, inflation, to put it simply. We also consider the impact of the embargo on oil and petroleum products. We take into account all these factors in our forecasts. However, these are not only changes in exports, but also changes in imports that matter. We can see that the import has rebounded sufficiently quickly. This is the combined effect of these factors that explains why we have adjusted the estimate of the current account surplus for this year downwards. Nonetheless, the current account balance remains significantly positive. We will consider this in the dynamics of the exchange rate.
As to Chinese yuan and whether we have sufficient reserves of yuan, we currently sell yuan within the fiscal rule, but we do not conduct any other operations with yuan. In our opinion, we have a sufficient amount of yuan for the operations conducted under the fiscal rule.
As regards digital currency, indeed, we are now very attentively examining China’s experience of the introduction of the digital yuan, among other things. Our colleagues are progressing very quickly, and we certainly take into account their work. Besides, we are exploring the experience of other countries as well. In the future, we might certainly carry out a discussion with various countries about the possibility of bilateral settlements in digital currency. Central bank digital currencies make it possible.
QUESTION from Reuters:
How much has the proportion of the Chinese yuan in Russia’s gold and foreign currency reserves decreased since you started to sell yuan? When are you going to buy yuan? Is this possible this year?
ELVIRA NABIULLINA:
To continue the previous question, I would like to repeat that we sell yuan within the fiscal rule pursuant to the instructions from the Ministry of Finance. Since we started selling yuan, the amount reached an equivalent of about 84.3 billion rubles. We release these data on the next day. You can find them on our website in the table ‘Factors affecting banking sector liquidity’. All these operations are absolutely transparent, and we do not conduct any other operations.
As regards the time when we might start buying yuan, this depends on how the basic oil and gas revenues of the Ministry of Finance will be forming. According to the fiscal rule, if annual revenues are estimated at a level above 8 trillion rubles, as a fiscal rule agent, we will start buying yuan. Whether or not this will happen this year depends on the developments in the market, primarily in terms of oil and gas revenues.
QUESTION from financial blogger Ksenia Paderina:
Do you have any news about the draft law on the self-ban on loans? The Bank of Russia approved the Ordinance, according to which a person may apply to a bank and introduce such a ban. However, as reported by my subscribers, unfortunately, this cannot be done currently. Therefore, we need a certain centralised law that would help people set this self-ban.
My second question follows from the first one. What else is the Bank of Russia going to do in order to protect people against financial fraudsters?
ELVIRA NABIULLINA:
Of course, we are supporting and advancing this idea of establishing a self-ban on loans, first of all online loans, and on setting/cancelling limits on money transfers, because this is a frequent form of fraud when loans are raised on people’s behalf or funds are transferred from their accounts to other ones.
As the Central Bank, we have instructed banks to provide the service of setting bans, self-bans and limits to their clients with regard to online loans and online money transfers. Some banks have already done this, while others need technical adjustments. However, according to our requirements, they are to complete this work by 1 July.
Nevertheless, we believe that we need such a law anyway because the issue of loans and money transfers through offices are beyond our regulation. This is also possible to cover all potential fraud techniques. Indeed, this is not the only way to counter fraud. As an example, I would refer to a measure that we also consider necessary for introduction. This is a two-day cooling-off period for money transfers. In other words, when a transfer is made to a fraudster’s account that is in the database of the Bank of Russia — and we provide information from this database to banks — when such a fraudster is recorded in this database and there is an order from a bank’s client to transfer money to the fraudster’s account, this two-day cooling-off period would enable the bank to warn its client. If the bank fails to do this and carries out such a transaction, the bank will be obliged to reimburse the money to its client. We support this idea as well. There are also other methods and mechanisms to combat fraud, which remains one of our priorities in the financial market.
QUESTION from Interfax:
At the beginning of the year, the Deposit Insurance Agency was entitled to open
And question two, please. What is the Central Bank going to do with the earnings from the sale of Bank Otkritie?
My third question is about dividends. As announced by the Ministry of Finance yesterday, it expects dividends from Sberbank for 2022. In this regard, the Ministry of Finance holds that it is a shareholder and the budget needs funds amid a reduction in the revenue base. As the regulator, the Central Bank agrees with the position that banks that have already become profitable can make dividend payouts without capital risks. Would not that be a premature decision?
ELVIRA NABIULLINA:
As regards the first question, until recently, funds in
Speaking of the compensation fund, the decision to transfer the assets from the NSD to the DIA is not connected with the fund in any way. We have suspended the discussion of this issue, and a lot will depend on foreign regulators’ position regarding the unblocking of the frozen securities held by Russian people. Later on, we will make a decision whether it would be reasonable to resume this discussion.
As to the amount of funds, we do not disclose this information, but it is certainly increasing over time.
Speaking of the earnings from the sale of Otkritie, we are not going to do anything special with them, and they are simply recognised as our revenue.
As regards dividend payouts, we have effective approaches to dividend policies and they factor in the use of regulatory easing by banks.
I have already said that the regulatory easing has been discontinued. However, we granted a five-year grace period for some ratios. In the first place, these are macroprudential capital buffers. This is related to the 3.5% systemic importance buffer and the 2.5% capital conservation buffer. We set them at zero for this year and established a five-year grace period for banks to form them in full amounts. If banks comply with this timeframe, they may pay dividends of up to 50% from the profits of the current and previous years.
If their financial position enables them to reach the levels of the ratios that they used to have before our regulatory easing that I have mentioned, they are allowed to make dividend payouts without any limitations. Of course, if they fail to comply with certain ratios, they are not allowed to pay dividends.
QUESTION from Izvestia:
As was earlier reported, the European Union had found legal grounds for using a part of the frozen assets of the Bank of Russia. Are you going to respond to this and file any lawsuits?
My second question is about loans. It was reported earlier that you were planning to introduce a mechanism of repayment holidays for consumer loans on an ongoing basis. When might this mechanism be launched? Don’t you think that this mechanism might involve risks of over-indebtedness among Russian households?
ELVIRA NABIULLINA:
Speaking of lawsuits, as I have already said several times, this process is rather complicated, legally complicated. We are preparing them. This work is in progress.
As regards loan repayment holidays, we support the approval of this mechanism on an ongoing basis with certain parameters: once in a lifetime, and others. The mechanism will be launched after the approval of the relevant law.
As to people’s over-indebtedness, this is a critical indicator. We can see that consumer lending has started to bounce back, but its growth rate is still quite moderate. Nevertheless, it is essential to monitor not only the growth rate of loans, but also their quality in order to prevent a fast increase in the proportion of those loans that are issued to already over-indebted borrowers. Probably, the key here is to avoid the problem that is called over-indebtedness. This implies the quality rather than the amounts of these loans.
Thank you for attention.