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Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting on 18 September 2020

18 September 2020

Today, the Bank of Russia has decided to maintain the key rate at 4.25% per annum.

Why have we made this decision, although we do see room to further ease monetary policy under the baseline scenario?

Firstly, in recent months inflation has been slightly higher than expected. This trend has been driven by both a rapid revival of consumer demand after the lockdown period and the weakening of the ruble in July — August. We estimate that short-term proinflationary risks have slightly risen again, while disinflationary risks somewhat decreased. However, disinflationary risks still prevail in the medium run.

Secondly, the external environment has become more volatile. There are rising concerns about the pace and sustainability of the recovery in the global economy, especially considering that in recent weeks the pandemic situation has worsened to a certain extent in a number of countries. Geopolitical risks have intensified.

Moreover, we also considered the following factors when making our decisions.

Inflation expectations remain elevated, affected by price and exchange rate movements and the persistent uncertainty over further developments.

The companies we survey are reporting rises in costs due to higher input prices. Moreover, they incur extra costs since they need to comply with the sanitary and epidemiological requirements. Concurrently, businesses assess demand for their products as weak. This limits their capacity to pass through increasing costs to end product prices. However, as demand bounces back, this pass-through may occur. And so businesses’ price expectations may also increase.

As regards households’ inflation expectations, in August we were able to resume our regular monthly surveys. Today, we have the opportunity to comprehensively assess new survey results, comparing them with pre-pandemic data. Households’ inflation expectations have certainly risen, specifically by one percentage point against March. However, I should stress that their response to the drastic change in the situation this year has turned out to be much less intense than before. This evidences that they are more anchored since inflation has been staying at its record lows over recent years.

I would like to emphasise that this stronger anchoring of inflation expectations is exactly what enabled us to promptly shift to accommodative monetary policy, significantly cut the key rate, and act countercyclically.

However, what is the reason behind our concerns about the rise in inflation expectations? There is a risk that they may again stay elevated for a certain time, thus impeding a steady anchoring of inflation close to 4% and affecting the flexibility of monetary policy further on.

Monetary conditions continue to adjust to the earlier significant key rate reduction.

Interest rates in the credit market are going down, with lending amounts having considerably expanded. Owing to financial stability in the banking sector, the key rate decrease has quickly and successfully translated into the easing of monetary conditions and supported the economy, despite higher credit risks. Unlike the previous crisis periods, this year we have managed to prevent a contraction in lending.

In addition to the key rate cuts, lending is also promoted by the regulatory easing and other measures implemented by the Bank of Russia. The preferential programmes launched by the Government are another important contributor to the easing of monetary conditions. In particular, preferential lending accounts for nearly one-fourth of new loans granted in recent months to small and medium-sized enterprises and about one-half of new mortgage loans.

Nonetheless, the anti-crisis support measures implemented by the Government and the Bank of Russia will be gradually terminated. We also take into account that it is essential to maintain accommodative monetary conditions next year in order to stabilise inflation close to 4% over the forecast horizon.

When making our decisions on the key rate, we also estimate how saving behaviour is adjusting to lower interest rates in the financial market. We are aware that in this case financial institutions, companies and households need time to adjust to the new conditions. This is especially relevant since the pandemic, declining incomes and higher uncertainty may dramatically alter consumption and saving models.

Seeking higher returns, individuals are increasing demand for various instruments in the financial market. For instance, we can already observe an increase in bond investments and an overall surge in households’ activity in the stock market. This trend in itself has no significant impact on the efficiency of monetary policy because the transmission mechanism is equally functioning through the securities market as well. We believe it essential that these changes in saving models do not entail any significant rise in risks for households, businesses and financial institutions. Hence, pursuing our monetary policy, we factor in that this adjustment will be taking time.

As regards the economy, after the easing of the quarantine restrictions, economic activity has been reviving, although unevenly across different industries and regions.

A number of industries are managing to decrease the gap with pre-pandemic output levels faster than other sectors. This is evidenced by official statistics, our up-to-date results of financial flows monitoring and companies’ surveys held by the Bank of Russia’s regional branches. Those industries that are primarily focused on consumer demand are bouncing back more quickly. Their recovery is being driven by both pent-up demand for goods that were unavailable over the quarantine period and the growth of expenses in the domestic market during the holiday period when possibilities to travel abroad are limited. Nonetheless, this is primarily related to goods. The service sector is still far from having fully recovered, being affected by post-quarantine restrictions and consumers’ cautiousness.

As regards the production of intermediate and export goods and their transportation, these industries are recovering more slowly. Weak external demand is a significant constraint on economic growth. Moreover, the momentum for the recovery in the global economy may be waning now.

As a result of this heterogeneity, there may be significant differences in price dynamics in different industries and regions, both now and in future. This trend is clearly demonstrated by data on consumer inflation in summer.

The return to potential in different product markets may occur at a different pace. For instance, in industries focused on domestic demand, this may be a faster process than in export industries; the recovery of the consumer-facing sector may be quicker than in the production of investment goods. Therefore, it is essential to consider not only the general output gap in the economy, that is, the deviation of output from its potential, but also the situation in individual sectors. If output in industries focused on domestic demand returns to its potential faster than generally across the economy, this will amplify overall inflationary pressure. We take this into account when analysing the economic situation and making key rate decisions.

At present, the effects of deferred domestic demand have been considerably implemented and the overall recovery of the Russian economy is likely to continue at a more moderate pace. This year, both fiscal and monetary policies are contributing to the economic recovery. At the same time, while anti-crisis budget measures were particularly important during the period of restrictions and will be curtailed in future, accommodative monetary policy will continue to operate next year to support the Russian economy.

I would also like to emphasise that both fiscal and monetary policies play a countercyclical role, that is, they address the issue of overcoming the downturn and bringing the economy back to its potential. This is certainly a top-priority task in the current situation, yet it is critical to remember what is absolutely essential for sustainable long-term development and an increase in economic potential, labour productivity and, accordingly, households’ incomes. To tackle this task, we need incentives to increase private investments and develop private initiatives and should enhance the flexibility of the labour market, which primarily depends on the business climate and other structural factors.

The level of our economic potential after the pandemic and how quickly the economy will regain it are crucial for both our macroeconomic forecast and monetary policy. As you know, this uncertainty of supply- and demand-side factors is a key point in our forecast scenarios. They are presented in the draft Monetary Policy Guidelines for 2021–2023 published last week. We are going to update our forecast estimates following the Board of Directors’ meeting scheduled for October. Yet, our approaches to the set of scenarios and key forecast assumptions in the scenarios will remain unchanged.

Winding up, I would like to make my traditional comments on monetary policy prospects. The main path of the monetary policy easing has already been passed — since June 2019, the key rate has decreased by 350 basis points, including by 200 basis points this year, to reach its record low. We still see some room for reducing the key rate, but we will consider the necessity to use this room and the time when this should be done.

As shown in the Monetary Policy Guidelines, both under the baseline and alternative scenarios, the Bank of Russia will be capable to tackle the task of maintaining price stability, that is, keeping inflation at our target close to 4%.

Q&A for the Media

QUESTION from Reuters:

Analysts expect the Bank of Russia to start normalising its policy by increasing the key rate. Do you agree with this?


Firstly, we are currently pursuing accommodative monetary policy. The key rate is indeed below the neutral rate range of 5–6% as per our assessment. We do understand that we will have to return to the neutral range at a certain point. Currently, we expect this to happen in the second half of the three-year forecast period, closer to the end of this period. When and at what pace this will happen will depend on how the situation evolves. At the moment, it is too early to discuss this, as we still see some room for the key rate to be reduced further.

QUESTION from Kommersant:

Did the Board of Directors discuss today how their decision could impact the implementation of the loan programme by the Ministry of Finance by the end of this year? Is the imprecise and simplified assumption that the Bank of Russia is currently helping the Ministry of Finance borrow the required amount of money to cover the budget shortfall until the end of the year true?


No, we did not discuss this topic in any way. We proceed from the assumption that the Ministry of Finance will be raising such loans and we comprehend that they are capable of doing this using the available market mechanisms. There is a demand for Ministry of Finance securities. Russia’s national debt is very small. We have always known that it may be increased to a certain extent in order to support the national economy.

We have not discussed this topic in the context of monetary policy.



Is the Bank of Russia planning, alongside with the publication of the key rate path, to disclose its archive forecasts that would enable a comparison of the regulator’s expectations against the actual situation? Is it possible that the Bank of Russia will do this as soon as this year?


Firstly, we have indeed decided to publish the key rate path. We are currently discussing how and when we will start publishing this information. However, at the moment, we are not planning to publish our archive forecasts. It is obvious that the reality may substantially differ from forecasts. We face numerous contingencies as recent years have demonstrated.

Of course, the form of the publication of the key rate will be important for us as well since it should reflect the wide variety of factors capable of impacting these forecasts in the future.

QUESTION from Bloomberg:

How do you assess the draft budget for 2021–2023? Do you consider that its parameters increase or reduce the likelihood of a key rate decrease?


We support the policy pursued by the Ministry of Finance and the Government in general that is aimed at gradual budget consolidation and returning to the fiscal rule. We consider it of paramount importance for maintaining the stability of the macroeconomy as a whole. The pace of budget consolidation chosen by the Government is, in our opinion, quite adequate, given the current challenges and economic development level.

We take into account this pace of budget consolidation when preparing our forecasts and, of course, will do so when making our monetary policy decisions.

I would like to emphasise once again that we are perfectly aware of the fact that the budget is going to be consolidated. However, in order to achieve the inflation target of 4%, we will need to continue accommodative monetary policy next year. To what extent? This will depend on the situation and how various factors evolve. We will be assessing this.

QUESTION from RIA Novosti:

As the Bank of Russia reported earlier, the risk of inflation deviating from the target in 2021 has significantly increased. How strong this deviation may be in the regulator’s opinion? Is it possible that the key rate will have to be decreased below 4%?


Indeed, we do see now that disinflationary factors will prevail in 2021. We are pursuing accommodative monetary policy exactly to avoid a substantial and long-lasting deviation of inflation from the target.

I would like to reiterate that we still see some room for a further key rate decrease, but we will be assessing how things evolve and whether the potential for a key rate reduction will remain the same, expand, or contract, and will consider this when making our decisions.

QUESTION from Interfax:

Could you please clarify how you assess the proposal by the Ministry of Finance to increase the tax burden for certain industries (metallurgy, oil production) and change the approaches to the mineral production tax and the extra profit tax, and the planned increase in the excise duty for tobacco products, etc.? Do you see this as leading to higher proinflationary risks, and to what extent may this impact inflation?

And the second question. Your forecast for this year shows a GDP reduction of 4.5–5.5%. This forecast was made in July. Is it probable now that this forecast may be changed? Could 2020 figures turn out to be better than those in the forecast?


According to our preliminary estimate, the influence of fiscal innovation on inflation-related processes will be minor. The situation is significantly different from when VAT was changed, which had a direct impact on inflation. In this case, we do not predict any risks or any substantial impact on inflation.

As for GDP, our effective forecast is the one prepared in July. We are going to revise it in October. We forecast a 4.5–5.5% decline in GDP, but this is only a preliminary estimate. Given the current developments and the pace of economic recovery, we rather consider that the situation is going to improve slightly and the GDP forecast will be closer to the upper boundary, i.e. 4.5%. However, we will be certainly reviewing everything within the next forecasting round in October.

QUESTION from Banki.ru:

As stated in the draft Monetary Policy Guidelines, the Bank of Russia may return to the key rate of 5–6% if the economic situation normalises and inflation stabilises close to the 4% target. What will be considered a normalisation of the economic situation and when does the Bank of Russia expect it to happen?


Firstly, according to our forecast, it may happen during the three-year forecast period. We cannot say when exactly as the situation is constantly evolving. But it is going to happen closer to the end of this period of time. I would like to reiterate that currently we are pursuing accommodative monetary policy, and we see some room for its further easing. Therefore, it is too early to speak of any key rate increase and when it may happen.

As for the factors that may influence this, they are as follows: when disinflationary risks go down, the output gap will shrink, the economy will be getting closer to its potential, and we will have more confidence in our capability to stabilise inflation at our target of 4%. That is when it is going to happen.

QUESTION from Forbes:

I have a question about the banking sector. You have repeatedly urged banks to recognise their losses in a timely manner and to disclose their losses caused by unrecoverable loans. Do you have any preliminary estimates with respect to the scale of the losses resulting from individuals’ and small and medium-sized businesses’ loan defaults which, as is well known, suffered severely this spring?

And the second question. Ms Nabiullina, you have been wearing some delightful brooches lately. What does today’s brooch symbolise and how do you choose them? Thank you.


As for banks and recognising the losses in a timely manner, the regulatory easing was intended to help banks and borrowers adjust to the new situation, and not to allow the concealment of losses. We proceed from the assumption that most borrowers will regain their capability to pay and creditworthiness as a result of the support measures and the recovery of the economy, and therefore there will be no losses. They just need time.

But if losses are detected and borrowers default on their loans, provisioning will be needed. This is what we requested. Moreover, we extended the regulatory easing for banks to create such provisions not on a one-time basis, such as by 1 April, 1 July, etc., but gradually, in order to recognise them on their balance sheets progressively.

So far, we are not observing any significant upward trend in default or bad loans. We are monitoring the situation, which is of course evolving. The loan repayment holidays and rescheduling periods have not ended yet. The assessments by banks and credit history bureaus differ: 15–25% of the restructured loans may turn into bad debts. However, in general, this percentage is not too high for banks’ balance sheets and assets, considering that the portion of the portfolio that has been restructured is actually large, but not excessively large.

Moreover, the loan restructuring, for instance, for borrowers, especially major ones, was carried out not because their capability to pay was weakening or worsening, but rather to lower interest rates, among other reasons, since interest rates are generally going down in the economy.

As for the brooches, I choose them based on the situation and my mood.

QUESTION from Izvestia:

Experts criticise the Bank of Russia, saying that despite the global trend, its monetary policy is still focused on inflation, whereas central banks in other countries adjust their policies so as to address economic growth and unemployment control goals. Is it possible that the regulator will shift from inflation targeting policy to focus more on economic development and controlling unemployment?


First of all, I would like to note that a significant number of countries generating a large portion of global GDP apply the inflation targeting regime. And none of them has chosen to abandon this regime over the period in question. A number of central banks do have a double mandate, providing for the maximum permissible unemployment level in addition to price stability. However, it should be understood that these two goals are interconnected. It is all about balancing the employment level and minimising any deviations of the economy from its potential. We proceed from this when targeting inflation. We are only able to influence economic growth to the extent that it deviates from its potential. As they say, inflation is a thermometer measuring the deviation of the economy from its potential.

It is impossible to impact long-term economic growth factors using the monetary policy measures and instruments that the Bank of Russia has at its disposal.

Therefore, we imply structural measures when speaking of the long-term rate of economic growth. However, now we observe an output gap, a deviation from the potential. Therefore, our decisive monetary policy measures, that is, the shift to accommodative policy, help the economy recover getting closer to its potential.


According to the press release, the market is adapting to significantly lower interest rates, which involves the adjustment of saving models. In this regard, my question is as follows: does the Bank of Russia consider there is a risk that banks may introduce negative interest rates on deposits and consumers switch to cash rather than other financial instruments?


Interest rates in the economy have indeed altered rather seriously and rapidly. This has an impact on the behaviour of both individuals and businesses, as well as financial institutions. In our opinion, time is needed for such adaptation.

At the same time, the reduction in interest rates, including on deposits, is more or less in line with the decrease in inflation. We can see that deposit rates remain positive, and savings are still attractive. However, we also see that the level of consumer interest in more profitable instruments, namely stock market instruments, has increased to a certain extent. This shift is indeed happening, and it is extremely important for us to ensure that people are fully aware of inherent risks when switching to and purchasing various financial instruments, because, as opposed to deposits that are insured, financial instruments involve risks that should be properly understood.

For this reason, we are advocating for the law to be enacted on qualified and non-qualified investors. Concurrently, it is essential to monitor actual shifts in households’ savings.

I would like to reiterate that as long as this occurs within the financial system, we do not envisage any problem in this regard. Nevertheless, comprehensive monitoring is needed. As for the attractiveness of foreign currency, we also see that the situation is more or less stable so far, but ongoing monitoring is required on our part.

QUESTION from Nizhegorodskiye Novosti:

Currently, the Government is making huge investments, including in COVID tests, free hot school meals, and benefits for parents. What impact does this have on inflation?


The Government is indeed investing a lot of money, helping people and businesses adjust to the situation. What are the possible consequences of this with respect to inflation processes? In our opinion, at this stage this helps reduce disinflationary risks slightly since both domestic and external demand has declined dramatically. We are experiencing high pressure with regard to disinflation, inflation reduction, and its deviation beneath our target. Therefore, the large government expenditures are rather decreasing disinflationary risks.

Currently, we do not see any proinflationary risks and do not envisage them in the coming year. We take into consideration that fiscal policy will be gradually returning to normal. We take this into account when making our monetary policy decisions.

QUESTION from Rossiyskaya Gazeta:

Major banks continue to decrease their deposit rates. Does the Bank of Russia consider that their level remains attractive for households?


We have discussed this recently. Interest rates are indeed falling, but we see that for the time being they remain attractive for households.

In recent months, the situation with deposits has been unstable. In the beginning, during the acute period of the pandemic, many people were stocking up on cash, withdrawing money from their deposits, but then we saw an influx of deposits.

Last month, in August, household deposits barely changed. However, if we assess deposits in general against August 2019, the growth was about 7%.

Therefore, there are some changes here. We will continue to monitor the situation. However, our overall opinion is that deposits remain an attractive saving instrument.

QUESTION from Fomag.ru:

I would like to continue the previous question, but to look at it from another point of view. Deposit rates have fallen, which means that it has become more difficult for banks to raise funds from households through this instrument, as deposits have become somewhat less appealing. How risky is this for the banking system, for conventional banking models, or is this still not a serious threat?


Household deposits are indeed a significant part of banks’ liabilities. Banks are well aware of this. When they pursue their interest rate setting policy, they take this into account so that deposit rates remain appealing to households.

However, as far as we can see, they consider how their resource base is changing in general. For example, households have become more interested in investing in the financial market, e.g. purchasing such instruments as bonds, which implies that the companies that placed their bonds have managed to raise funds. They place them in the banking system in current accounts. These current accounts are quite cheap, maybe slightly more volatile. The banks manage this liquidity. Now we can see that the situation with liquidity is absolutely normal for banks.

The situation with the margin is also quite stable. Many people were worried about what would happen to banks’ margins. Most of the banks accounting for 95% of the banking system’s assets are profitable, so they are performing quite flexibly in this regard. However, such changes certainly take time for the models to adjust to them, and we should take this into consideration.

QUESTION from Bloomberg:

How much has the ruble exchange rate deviated from what would be considered a fundamentally justified level? Does the Bank of Russia expect an increase in demand for foreign currency if the ruble continues to weaken? Has the Bank of Russia assessed how additional currency sales related to the Sberbank deal influenced the ruble?


You know, we try not to use the concept of a fundamentally justified level, because we have a market rate, and this rate reflects the balance of interests of market participants and economic agents. I also believe that it is erroneous to link a fundamentally justified exchange rate to the current account or the oil price, as some people do. This is not quite right; we need to take into consideration the status of the financial account. That is why we do not give such assessments. So far, we do not see any additional excessive demand for foreign currency from households.

I believe that both households and businesses have already got used to the floating exchange rate, that there are times when it weakens, and there are times when it strengthens. Speculative behaviour in this area may sometimes entail losses.

As for the sale of foreign currency remaining from the Sberbank deal, we have already announced that we will be selling it at regular intervals until the end of this year. The sales volumes will not affect the exchange rate considerably, and we are striving to ensure that such deals do not significantly impact the exchange rate.

Once again, the amounts are not very large, specifically about 185 billion rubles to be sold until the end of the year.

QUESTION from Bloomberg:

I would like to clarify the issue regarding the key rate path. Is there any exact period when you can start publishing this information — this year, or at the beginning of next year? What is the forecast horizon for this path and will it comprise the moment when you decide to increase the key rate?


Firstly, we have made the fundamental decision to publish the key rate path. Now discussions are underway about how to publish it — whether this should be fan charts, as some countries do, or dot plots by the members of the Board of Directors, as others do. Both options have their pros and cons. As soon as these discussions reach a conclusion, we will start publishing the path, but this is not likely to happen this year — probably, next year. We will start publishing this information when we are confident that we are ready to do this. However, the decision has already been made.

We have made this decision to be more predictable in the first place. Nonetheless, I would like to emphasise that this is not forward guidance, as in some countries, but still provides more predictability as regards the range of opportunities or the range of the key rate path we can see.

We simply observe that the markets do want it. The second reason why we did not publish the key rate path before is that such information would be largely perceived as both forward guidance and even as a commitment — our obligation to implement a particular policy.

As we can see, the situation may change quickly, and there may be various factors making the path of monetary policy deviate from what we expected some time before.

Nevertheless, we currently observe that the market has a better understanding of our communications and that the risks of perceiving this as a commitment have decreased. That is why we have decided to start publishing these rates.

QUESTION from Interfax:

Many banks and companies have decided that some employees will work from home not only during the pandemic, but also on a permanent basis. Will the Bank of Russia do the same, and if so, what kind of employees of the Bank of Russia could work from home?

And another question in this regard. Is the acquisition of the Oruzheyny business centre still relevant for the regulator and when may this deal be closed?


A significant percentage of our employees are now working from home. To this end, we also had to change some business processes and provide necessary technical equipment. Generally, the pandemic has shown that a considerable amount of our work can be permanently done from home without compromising its quality. Of course, this depends on the type of the work. Many employees can work from home, but not everyone.

We are currently discussing these issues within the Bank of Russia, and we will make a number of decisions in this regard.

As to the acquisition of the building, this deal seems to have lost its importance.

QUESTION from Kommersant:

I have two questions. The first one is purely technical: how do you assess changes in the saving ratio? It has grown strongly across both corporates and households. How do you expect it to move over the course of the year?

The second question is rather ideological. I have noticed that in your speech you mentioned the importance of restoring private initiatives. Do you consider that all the processes that have taken place in the Russian economy since the beginning of the year have been deteriorating or improving the situation with private initiatives?


Changes in household and corporate savings. As for business, the companies that faced a sharp decline in profits and, consequently, revenues, have of course spent their savings on paying rent, wages, and so on. Other companies which may not have been so badly affected by revenue reductions were capable to suspend their investment projects in order to assess the prospects for demand for new products and thus managed to increase their savings. Therefore, I believe that savings were changing unevenly across economic sectors and companies.

As for households, they still expanded their savings. This is true, at a certain period of time these savings were withdrawn from bank deposits as cash. We did observe this. Households did this in order to have access to these savings in case they were needed to buy food over the lockdown period. There are also savings kept as a precautionary measure: when people believe that an uncertain situation is ahead, of course they tend to save more in a way. We can see that the saving ratio will most likely remain at an elevated level in the second half of the year.

What will happen next year is a factor of uncertainty for us. Therefore, as I have said, we will be closely monitoring changes in the saving and consumer model. Thus, more time is needed to assess the effects of the easing, among other things.

As for what was happening with private initiatives and the related conditions, you know, it is rather difficult to draw any conclusions at the moment, because there were factors that essentially limited economic activity, making it to contract dramatically. Nonetheless, as economic activity recovers and anti-crisis measures and approaches are gradually cancelled, I believe that the issue of supporting private initiatives will become of key importance as regards long-term economic growth rates.

QUESTION from the Saint-Petersburg TV channel:

If repeated restrictions are imposed and we have a resurgence of coronavirus cases, how may the key rate be changed? What monetary policy options are you considering in this case?


Our baseline scenario does not presume a deterioration, a second wave, but, of course, we need to be prepared for any developments, including adverse ones. Therefore, we have elaborated a quite detailed risk scenario presuming negative developments. By the way, even if this occurs, we do not expect restrictions to be as tough as before — most likely, they would not be as tight.

As regards monetary policy, we will consider the balance of various factors impacting the situation, but in the medium term this is more likely to lead to the further prevalence of disinflationary risks. This would indicate that we would need to continue pursuing accommodative monetary policy.

QUESTION from Komsomolskaya Pravda:

There is a certain imbalance arising in the banking system. After the key rate reduction, deposit rates are falling faster than interest rates on loans. As a result, banks are making huge profits. This is confirmed by the net profit data for the last few months. Don’t you think this is abnormal? Essentially only banks and not their clients are benefiting from the key rate cut.


Interest rates are indeed changing unevenly, and a decrease in the key rate does not result in an equivalent reduction in deposit or loan rates.

There are several key factors currently impacting loan rates. On the one hand, credit risks have increased, and banks are thus not so inclined to cut their loan rates. On the other hand, the large-scale support programmes, including those implemented by the Government, help reduce interest rates, especially in mortgage lending and for small and medium-sized businesses.

As regards deposits, however, we see banks doing the following: they are observing how depositors behave, because they are interested in maintaining their deposit base.

As for the interest margin, of course, banks are trying, as always, to protect their interest margin, since this is one of their key priorities. We can see that banks’ profits certainly declined drastically during the first months of the pandemic, but now they are gradually recovering. These profits are also important for capital to expand.

Profit is a source of capital when many external markets are closed, and so on, whereas capital is a source of growth in lending. Thus, this is all interconnected, and we do not observe that banks have excessive margins. Nonetheless, the recovery of bank profits and banks’ sustainability in this regard are an important component of the overall resilience of the economy to various types of shocks and are also vital to support economic growth.


Discussions are ongoing about extending the governmental mortgage programme. What is the opinion of the Bank of Russia regarding this issue and can you see any risk of a bubble due to the extreme popularity of this product?


The preferential mortgage programmes have indeed played an extremely positive role in supporting mortgage lending and housing construction. Banks have granted a record amount of mortgage loans, and this is very good. Loans have become more affordable for people: this was driven not only by the key rate reduction, but also by the Government’s subsidies.

As for the future, we need to assess everything. In the first place, we certainly need the overall support of mortgage lending, because there is high demand for mortgages. However, we are carefully observing the market to ensure that the number of, so to say, high-risk mortgage loans does not grow. No one can forget 2008, the United States, the subprime crisis, and so on.

Therefore, our macroprudential regulation is aimed at ensuring that banks evaluate borrowers’ quality and issue mortgage loans solely to those who are capable to service their mortgage loans. We can see no problems in this respect, and the quality of loans remains good. Nonetheless, we also need to keep an eye on the second component, when they talk about a mortgage bubble or a possible mortgage bubble — what will happen to housing prices.

When demand is stimulated actively, it is essential to have a supply that is manifested not in the growth, not as much in the growth of housing prices. At the moment, we see that the growth of housing prices over the past year has been exceeding inflation, and therefore, it is certainly critical to monitor these processes.

I would like to draw your attention to the following. The preferential programmes both in mortgage lending and for small and medium-sized businesses provided significant support to the economy during the period in question. However, as the situation returns to normal, we should be aware that when there are segments in which loan rates are lower than market rates due to subsidies, interest rates in other sectors, all else being equal, will be slightly higher, in order to implement monetary policy aimed at securing price stability. Therefore, all these effects should be compared when talking of extending preferential loan conditions.

However, in general, I would like to stress that the preferential mortgage programme has certainly boosted the growth significantly in recent months.

QUESTION from Izvestia:

This year, the Bank of Russia stressed at the very beginning of its Monetary Policy Guidelines that one of its key functions is to protect and ensure the stability of the ruble. We have not heard such rhetoric from the regulator for a long time. What is the reason for this emphasis in the Monetary Policy Guidelines, and how much did the weakening of the ruble affect today’s decision on the key rate?


I think that this is something we regularly talk about and remind of the context in which the legislation stipulates the task for protecting and ensuring the stability of the ruble. If you look into the Constitution and the law on the Bank of Russia, the protection and stability of the ruble shall be ensured through maintaining price stability in the first place.

The stability of the ruble primarily implies not the amount of foreign currency one can buy for the rubles one earns or saves, but the purchasing power of the ruble, that is, the number of goods and services one can purchase, which involves inflation. Therefore, in my opinion, it is fundamentally wrong to consider that ruble stability is equivalent to exchange rate stability. Ruble stability implies steadily low inflation, and we emphasise this once again in our Monetary Policy Guidelines.

QUESTION from Bloomberg:

I would like to know what, in your opinion, explains the continued high volume of cash in circulation? Who is causing this high demand for cash, this extra money that has ended up in circulation? How much, if at all, does this worry you, and when might this situation change?


Firstly, we believe this is a perfectly natural process given the current situation. There was indeed a surge in demand for cash during the pandemic period, specifically the lockdown. After that, we did not observe any additional demand for cash, but the cash that people withdrew has most likely not been spent yet. Moreover, we can observe this trend not only in Russia. I keep my finger on the pulse of what is happening in other countries. A large number of central banks note that households have increased their demand for cash.

I would like to stress once again that this is perfectly natural given the current conditions. This reflects the uncertainty factor. When there is such uncertainty, this is how people behave, but as the economy recovers, the situation will return to normal, people will regain confidence, and, I think, cash will gradually return to banks as a result of this.

QUESTION from RIA Novosti:

The Bank of Russia predicted that the share of non-cash payments in retail would reach 70% by the end of this year, but it had almost reached this figure by the end of the second quarter. With this in mind, what share of non-cash payments does the regulator expect by the end of this year? Can you estimate how much the coronavirus has affected this in percentage terms?


Yes, this question is somewhat similar to the previous one. We have seen that demand for savings in cash was rising during the pandemic. People were withdrawing savings from their deposits in order to have cash available. On the other hand, the share of non-cash payments has increased. We also facilitated this, including through the development of our services and tariff policy, specifically with regard to acquiring fees.

Indeed, the growth of non-cash payments is slightly better than we estimated. We expected them to reach approximately 69–70% by the end of the year. Now we believe that by the end of the year they will exceed 70%, although this is difficult to predict. If we compare these dynamics with the figures in March before the outbreak of the pandemic, the coronavirus probably produced about a 3 percent increase in non-cash payments. This resulted from the pandemic and the related development of remote services.

QUESTION from Kirovskaya Pravda:

There are now loan repayment holidays in place, and many households have deferred their payments. Does the Bank of Russia expect a sharp increase in overdue loans after the end of the repayment holidays? Won’t this lead to a tightening of monetary policy?


Many households have indeed opted for loan repayment holidays now, with payments deferred, and the holidays have not ended yet. We do not expect a sharp increase in overdue debt. Why don’t we expect it? If there had been no repayment holidays, overdue debt could have grown. The repayment holidays were aimed at giving people a break, an opportunity to regain their incomes and resume servicing their loans.

According to our estimates, according to banks, the vast majority of borrowers will be able to start servicing these loans again. They will not become overdue, they will not turn, as they say, into bad loans. In our view, this is unlikely to affect monetary policy.

QUESTION from Bloomberg:

In your press release, you state that the weakening of the ruble was associated with the overall increase in volatility in world markets and intensified geopolitical risks. Geopolitical risks are now growing, and there are threats of new sanctions due to the poisoning of Navalny. Does this mean that the ruble may weaken further?


There are various geopolitical risks right now, and their level is really high. This is related to the expectations of the election in the United States, and its impact on the global economy, global politics, and the situation in global financial markets. Moreover, there are concerns about how the US—China trade relations will develop in general, and the situation with Brexit; there are many uncertainties, and there are specific risks for us.

We always take into account these circumstances, but as for their impact on financial and currency metrics, investors and markets have largely factored in these aspects in asset prices by the moment. If the situation worsens, we have a set of instruments enabling us to maintain financial stability in any conditions.

QUESTION from Interfax:

The Bank of Russia did not include the factor of a car owner’s gender in the list of exceptions to the amendments to the law on compulsory motor third-party liability insurance. Accordingly, beginning from 24 August, insurance companies gained the right to factor in gender when determining the cost of compulsory motor third-party liability insurance. Some insurance companies have already done this. Why did not you exclude the gender factor? Don’t you think that this violates the rights of consumers, because statistics show that women are more likely to get into accidents, but they are mostly minor?

And the second question. Could you tell us about the dynamics of corporate and retail lending in August?


As for insurance rates and the criteria that can or cannot be used for differentiation, we will probably return to this issue, including gender, and discuss it once again.

As regards the growth of lending, it also remained at a good level in August. Overall, we see continued growth in both corporate and retail loans.

QUESTION from Reuters:

Can the Bank of Russia launch a QE programme that would stimulate demand for federal government bonds?


No, it cannot.

There are no more questions. I thank you all for your attention and wish you good health.