A year later: as the Central Bank of the Russian economy and the ruble saved

A year later: as the Central Bank of the Russian economy and the ruble saved


The measure of the Bank of Russia rate increase was effective, but a little overdue, analysts say. To date, the rate declined by 6 percentage points and the reduction potential is not yet exhausted.

MOSCOW, 16 Dec. Exactly one year ago — December 16, 2014 — in the midst of financial crisis the Bank of Russia has abruptly raised its key interest rate from 10.5% to 17% per annum. Then its decision the regulator has determined the need to limit significantly increased devaluation and inflation risks.

A dramatic move the Central Bank followed the panic on the currency market on Monday 15 December, the day when the ruble collapsed against the dollar by 9%, and the dollar rose more than 6 rubles, to 64.4 rubles. The dollar on the stock exchange and when the exchange 16 December reached 80 rubles, and Euro — 100 rubles.

Analysts polled believe that overall, the measure of the Central Bank on the rate hike was effective and prevented a collapse in the financial market, but was a bit late. According to economists, if the controller is not delayed bet would not “Jack up” by 6.5 percentage points, probably, would have sufficed to increase it by 2 percentage points.

To date, the “thin” 6 p. p. she currently is 11%. Despite the strong decline in the beginning of the year, the Central Bank since August slowed down this process and keeps it at the same level. However, experts believe that the downside potential is not exhausted, since inflation is the main objective of the Central Bank in monetary policy is slowing down.

However, the Chairman of the Bank of Russia does not expect a repeat of December 2014. “The situation this year is fundamentally different from the situation last year,” she said at a press conference following the meeting of the Board of Directors of the Central Bank on December 11.

She recalled that Russia’s economy last year experienced external shocks due to the combination of three powerful negative factors. It is a deep fall in oil prices, which has resulted in a decrease in revenue in Russia of foreign currency earnings, the imposition of financial sanctions of the West against Russia and that on December 2014, accounted for a peak of payments on external debts were mentioned by the head of the Central Bank. None of these three factors is not observed now, said Nabiullina.

That was averted

Economists believe — thanks to the measures the Central Bank has managed to avoid mass flight of depositors from banks that would have risked the collapse of the ruble and would undermine the banking system.

“As we have seen, is quite effective. The purpose of this step was the stabilization of the ruble and suspension of the outflow of deposits of population and companies, which was. The Central Bank is able to stop, but the situation must be considered together with the measures which the Central Bank then announced. That is, the effectiveness of other measures that we discussed, would be significantly lower,” says chief ING analyst Dmitry Polevoy.

According to Field, if the Central Bank has not raised, it would remain excessive volatility in the foreign exchange market. “It is possible that the pressure on the ruble would have continued and then we could easily see levels of 80 and 90 rubles per dollar, and possibly 100, if the situation is not stopped”, — the economist thinks.

He also believes that the inaction of the regulator at that point would have led to serious problems in the banking system and the financial sector. “We would have a larger attenuation rate, large potential risks to inflation, potentially the worst situation in the banking system and another effect on the economy. We’re in a recession, but the scale could be much larger than what we have now,” he listed the possible negative implications of the Field.

The devaluation of the ruble was inevitable

Chairman of the Board of Directors of MDM Bank, former Deputy Minister of Finance and former Chairman of the Central Bank Oleg Vyugin believes that the measure in the form of a sharp increase in the key rate worked. “The issue price — the interest rate risk that banks took capital as a result. In my estimation, about 0.5 trillion rubles,” — noted the Vyugin.

According to the banker, the Central Bank was another reason in addition to the tightening of monetary policy — a significant one-time devaluation of the ruble and the provision of guarantees at the expense of reserve funds for payments of the companies with state participation in external debts. “To take this step after repeated promises to move to a floating exchange rate was difficult. Well as to calculate the medium-term consequences of this step in the framework of the prevailing external economic environment was impossible,” he explained.

In that case, if the Central Bank has not taken in December last year, emergency measures, most likely, banks would suffer, it would take several trillion of state aid to maintain their ability to fulfill obligations to depositors and creditors. “The ruble would be devalued his painful peak of the fall”, — said Vyugin.

A belated solution?

The head of Association of regional banks, Anatoly Aksakov, Deputy complains that the Bank of Russia raised its key interest rate as a pending measure. “The more you tighten, the more you have to raise. You raise 2 points, but due to the fact that I was holding, then he had to jump,” — said Aksakov.

According to the Deputy, the Central Bank also late and with the introduction of free-floating exchange regime. “The floating rate — this measure should have been taken much earlier. We artificially maintain a strong ruble, it was better to keep artificially low,” he said.

EDB chief economist Yaroslav Lissovolik shares the view of the Deputy. “Partly the fact that the market does not react positively immediately to change the key rate could be due to the fact that the rate decision some time was delayed and probably volatility of the Forex market by this time was excessive. However, of those mechanisms which were at that moment — increase in the rate was one of the few that could use it,” says Lissovolik.

The repetition of the situation it is hardly possible

With opinion Nabiullina, stating that the situation of last December, with a sharp collapse of the ruble and the need to re-raise the bet will not be repeated, analysts agree.

“A repeat of last year do not expect, the potential to reduce rates persists, despite the fact that she has dropped from 17% to 11% per annum. The situation on the currency market is fundamentally different from the situation that was. If in December 2014 there was a sustained and sharp depreciation of the ruble, the panic among the population and companies, now we see the opposite picture — the ruble even opposed in some degree to the low oil prices,” — said Polevoy from ING.

The economist also draws attention to the fact that today the shortage of currency and there is not observed any panic on the currency market. “There’s no reason to bet increased: inflation continues to slow, despite the fact that the risks are. The following year, a repetition of the situation is hardly possible”, — says the analyst ING.

He recalled that the Central Bank in the implementation of risk scenarios can use every tool change rates to intervention in the foreign exchange market, from which the regulator for some time refused.

“Given that we have the oil price now below $ 40 per barrel, i.e., assuming that oil prices fall to $ 20 per barrel and below, probably, some risks of increased pressure on the ruble, increasing the key rate. Theoretically, the chances of that are not zero, but it is not the baseline scenario”, — said Field.

Agrees with him and Aksakov. “I think the end of the year will not be any sudden movements. Now the Central Bank is quite experienced, knows what he has the leverage to control the situation. Still, the price of oil goes down smoothly, allowing you to adapt and exchange rate and the market”, — said Aksakov.