From high to collapse: the dynamics of oil prices since 2000
PANSIONAT BOR /Moscow region/, February 11. The Bank of Russia revises its macroeconomic forecasts and expects a long period of low oil prices, said the head of the CBR Elvira Nabiullina at the meeting of heads of credit organizations with the management of the Bank of Russia.
“Now we are revising our forecasts. Must proceed from the fact that low oil prices can be long. They put additional inflationary pressure,” said the head of the Central Bank.
According to Nabiullina, if the decline in oil prices will be protracted, will require further adaptation of the economy.
The Central Bank after the next meeting of the Board of Directors on January 29, refrained from changes to macroeconomic forecast. While the regulator identified the direction of change, saying a possible rise in inflation in the second quarter, a more severe decline in GDP for the year and likely lowering the forecast on oil prices. While the baseline forecast of the Bank of Russia envisages oil price at $50 per barrel, inflation at 5.5-6.5 per cent, the decline in GDP by 0.5-1%.
The key rate remains at 11% per annum from August 2015. In the first half of 2015, the Bank of Russia gradually cut the rate, mitigating the impact of “interest rate shock” of December 2014, when the rate was raised from 10.5 to 17% per annum.
New challenges in the economy
In the Russian economy by the end of 2015 to the beginning of stabilization, said Elvira Nabiullina, but now new challenges have arisen.
The speaker: the rapidly changing macroeconomic reality requires decisions without panic
“In the first quarter of 2015, the balance of payments has adapted to external conditions, the banking system is very hard we started the year. But by mid-year began to occur the reversal, including trends, began to grow loans, primarily non-financial organizations, banks have shifted to profit. The economy began to show signs of stability. But towards the end of the year came a new wave of reduction of prices on oil, and this is largely created additional challenges for the economy and financial system”,- said the head of the Central Bank.
As reported in the monitoring the Ministry of economic development for 2015, preliminary data for December showed almost stopping the decline in economic activity, the decline in GDP with seasonality in December 2015 stopped, reaching 0% compared with a decline of 0.2% in November.
As previously stated the Minister of economic development Alexei Ulyukayev, the Russian economy has technically emerged from recession, if the recession is to understand the decline in the past two quarters. According to the data contained in the Bulletin of the Department of studies and forecasting of the Bank of Russia, the Russian economy in the coming months, most likely, will continue to “feel the bottom”.
Three ways to stabilize the ruble exchange rate
The ruble may stabilize only the diversification of the economy, said Elvira Nabiullina. The head of the Central Bank called three ways to reduce the volatility of the ruble: currency interventions at the expense of international reserves, the rebound in oil prices and the changing structure of the economy.
The ruble is falling and growth
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“The third and, in my opinion, the best scenario is to diversify the economy”, – said Nabiullina, explaining that if the economy will be less dependent on oil, the ruble will cease to react to commodity prices. “This is a longer-term, more severe challenge not only with monetary and fiscal policy”, – said the head of the Bank of Russia.
“We reduced the volatility of the ruble through the sale of reserves is not supported”, – said Nabiullina. The head of the Central Bank explained that such behavior of the Central Bank, the ruble then stabilized at still higher levels.
To reduce the volatility of the exchange rate, according to Nabiullina, the Bank of Russia may consider the possibility of returning to the derivatives market. “Details have not yet discussed, but in principle such ideas arise. In my opinion, not so much the Central Bank should go back there, how much to give the possibility for economic actors to use these tools,” she said.
Author: Konstantin KORISHCHENKO
The Governor of the Bank of Russia also said that the Central Bank does not refuse currency interventions at all. “I will stress that we will not abandon the foreign exchange interventions at all,” she said, Recalling that the Central Bank still assesses risks to financial stability when making decisions about entering the foreign exchange market.
Elvira Nabiullina emphasized that the Central Bank is not considering the attenuation rate of replenishment of the budget. “Complete nonsense”, – she answered to the question about whether the Central Bank is discussing this option with the Finance Ministry. “We are not considering the change of exchange rate policy moved to a floating exchange rate and all the principles of our well-known exchange rate policy”, – said the head of the Central Bank, adding that attempts to artificially affect the rate of replenishment of the budget “have very large negative consequences.”
The Bank of Russia from November 10, 2014 abolished the previously existing mechanism of exchange rate policy and completed the transition to the floating exchange rate regime.
The fall of the ruble began in the second half of 2014, while from June to December, the Russian currency has fallen against the dollar by 2.2 times. Then in 2015 amid falling oil prices, the ruble fell against the dollar by 31%, to Euro – by 17%. Since the beginning of this year, the dollar rose against the ruble by another 8% to 79.5 per ruble and Euro – 12% to 90.1 ruble.
Falling oil prices dragged the rate of the ruble. So, from the highs of the summer of 2014 the Brent oil price has now fallen by 74% to $30 per barrel.
The baseline scenario of the CBR implies the achievement of inflation target at 4% in 2017, risky problems. At the moment the Central Bank revises forecasts and present them on March 11, said Elvira Nabiullina.
“Certainly we strive to achieve our inflation target of 4% is not disposable, and stick to that level. We are committed to this goal, but will do so taking into account the state of the economy. Now we dotoshnym our forecasts. In the baseline scenario we reach the goal in 2017, for risk scenario have questions”, – said the head of the Central Bank.
About currency mortgage
Banks should identify measures to support the currency food on an individual basis, but the regulator together with the government is also studying possible solutions to the problem, said Elvira Nabiullina.
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“We believe that banks should restructure foreign currency mortgage loans. But consider the possibility of targeted support together with the government”- said the head of the Central Bank.
At the same time, Nabiullina stressed that “the main program must earn the support of people in difficult life conditions, which is administered by the government”.
On measures to support lending to small and medium businesses
The Bank of Russia is concerned about the decline of lending to small and medium businesses. “What bothers us is that falling lending to small and medium businesses. Small business loans declined by 4.4%. This of course is a matter of concern. Here additional measures are needed and the government takes them,” said Nabiullina.
Putin demanded to ensure the access of small and medium-sized businesses to public procurement
As previously reported, the project plan to support the economy of the Russian Federation provides for the allocation in 2016 45,4 billion rubles for the development of small and medium enterprises. In particular, 10 billion rubles were invited to submit anti-crisis Fund for the creation of new small and medium enterprises. The development of SMEs should contribute to the creation and development of centers of excellence in innovation, microfinance and guarantee funds, to support single-industry towns, grants to modernize the production of small and medium entrepreneurship, creation and development of private industrial parks, grants to budding small businesses.
Reorganization in banking sector
The regulator, according to the head of the Bank of Russia will continue the policy of improvement of the banking sector, despite the economic difficulties.
The banking system of the Russian Federation in 2015. Dossier
“We continue to pursue a policy of recovery of the banking sector, bringing to market, on the one hand, weak on the other – much unfair players, despite the difficulties in the economic situation, this is not a reason to abandon this policy”, – said the Chairman of the Central Bank.
Elvira Nabiullina also answered the question about how much money the Bank will be able to get from the Deposit securities, which was issued on the rehabilitation of GLOBEXBANK and Sviaz-Bank. “While the matter is not finally agreed. But can get,” she said.
As previously reported by the Bank of Russia, in 2015, under the reorganization were 15 banks (2014 – 12), licenses have lost 93 credit institutions (in 2014 – 73).
The Bank of Russia on 8 February of the current year announced the revocation of the license to conduct banking operations in CB “Intercommerz” (Moscow) which, according to statements by total assets on 1 January were occupied 67-e a place in the Russian banking system and was among the top hundred banks by net assets.
New exemptions for banks will not be
According to the head of the Central Bank, Russian banks are able to adapt to the new economic environment without the tax benefits from the CBR.
CBR: the decline in GDP in the first quarter of 2016 may be less than 1%
The Bank of Russia is not going to extend the discounted ratio of risk for banks (N1 and N6) after the first quarter of 2016. “Due to the fact that there was a new decrease in oil prices, which affected the exchange rate, we have introduced a new relief on the block when the calculation of the standard risk on one borrower and group of related borrowers embarked on January 1, 2016, We believe that it is necessary to analyze the situation, but it’s time to adapt, we believe sufficient for banks”, – said Nabiullina.
“The Central Bank has taken measures to facilitate the adaptation of the banking system, has relaxed some regulations. We did this in order to give the banking system time to adjust to new conditions, and not to hide the real issues”, – said Nabiullina.
The CBR allowed banks to count in the ratios of the risks in the first quarter the exchange rate on 1 January 2016. The decision was taken to reduce the regulatory risks due to high volatility of the exchange rate.
The relief applies to the five currencies – the dollar, Euro, pound sterling, Swiss franc, Japanese yen. The fixed rate can be used in the calculation of the standard maximum size of risk on one borrower or group of related borrowers (N6) and the normative of the maximum risk per borrower or group of related borrowers banking group
About the tightening of monetary policy
The Central Bank does not exclude the tightening of monetary policy (DCT) when implementing a negative scenario, said the head of the Bank of Russia.
About the ruble, the price of oil and the “pluses” of devaluation. Quote officials and experts
“There is a risk that oil prices will continue to remain depressed for a long time. New wave of reduction of prices on oil has put further inflationary pressure. In the case of aggravation of inflation risks, will be implemented if a negative scenario, we cannot rule out monetary policy tightening,” said Nabiullina.
The head of monetary policy Department, Bank of Russia Igor Dmitriev during the Gaidar forum in mid-January stated that the Central Bank of the Russian Federation in risk scenario assumes a tightening of monetary policy.
After the next meeting of the Board of Directors on January 29, the Central Bank gave the market two key signals about the risks of non-compliance inflation target to 4% in 2017 and a possible new round of increase in the key rate. At this rate it was decided to leave at 11% per annum.
Improving coverage ratios capital on loans in foreign currency
CBR proposes to establish increased coverage ratios capital on loans in foreign currency to reduce valorisatio Bank balance sheets.
“We have now published a draft document where we are on all loans and securities in foreign currency, except for loans to subjects of the Russian Federation, proposed to set upward a factor 1.1 for the roofing requirements for the capital of these loans,” – said Elvira Nabiullina.
In addition, according to Nabiullina, the real estate ratio is 1.3, for securities of non-residents is 1.5. “We will carry out measures to devolatization smoothly enough” – promised the head of the Central Bank.
On devolatization Bank balances
The Central Bank affirms the necessity of devolatization Bank balance sheets. In addition, the regulator will “pay close attention” on the sources of Bank capital.
“Direction, which would encourage a reduction in the share of foreign currency in the balance sheet and the assets and liabilities, we will continue to do,” she said.
“The problem is not only in the deposits. We have a large share of deposits of legal entities in foreign currencies and foreign currency loans to legal entities. This implies additional risks to financial stability,” Nabiullina said, adding that it might create systemic risks for the real economy.
In early February the Minister of economic development of Russia Alexei Ulyukayev said that now the Russian banks quite a large amount of foreign currency liabilities. According to him, issuance of bonds denominated in foreign currency, balancing currency debts of banks.
Bank assets exceeded that in 2015 GDP of the Russian Federation
Bank assets exceeded that in 2015 GDP of the Russian Federation, despite the difficulties in the economy, said Elvira Nabiullina.
“Despite the fact that the year 2015 was quite difficult, the assets of the banking system increased by 6.9%. If we fail to take into account changes in the exchange rate, the assets decreased by 1.6%. This, of course, does not make us happy, but we must also look at what proportion of banking system assets to GDP. In our strategy, we talked about the fact that this share should reach 100%. In 2015, it has exceeded 100%. By 2014, the share of banking assets to GDP was 99.7 percent,” – said Nabiullina.
The Central Bank discrimination against private and medium-sized banks
The Bank of Russia against discrimination by private and medium-sized banks when state banks for their accounts, Elvira Nabiullina, answering the question about the approach to the selection of banks for conduct of government contracts, including defense orders.
“Control over the use of budgetary means is necessary to prevent their unauthorized use. The state has every right to set additional criteria to credit organizations that cater to the relevant state programme. But we as the regulator insist on two principles. There should be no discrimination based on ownership and size, does not require a particular contract,” – said the head of the Central Bank.
Assessment of banking regulation in the Russian Federation
The Basel Committee will publish in March the assessment of compliance of banking regulation in the Russian Federation, Chairman of the Bank of Russia.
“Last year, we first tested the Basel Committee for compliance with our regulation of the Basel standards. For the past three years, 20 countries have completed such an assessment. We hope, in March, when a published report, fairly successfully pass this assessment, and this will allow banks to appropriately build relationships with foreign partners”, – said Nabiullina.
From 1 January 2016, Russian banks need to move to the standards of “Basel-3”, in accordance with which the adequacy of total capital be 8% and not 10% as it is now. Basel-3 is a document of the Basel Committee on banking supervision, containing methodical recommendations in the field of banking regulation and approved in 2010-2011.
The third part of the Basel accords was developed in response to deficiencies in financial regulation exposed by the financial crisis of late 2000-ies. Basel 3 increases the requirements for Bank capital and introduces new regulatory requirements on liquidity. The main purpose of Basel-3 is to improve the quality of risk management in banking, which, in turn, should strengthen the stability of the financial system as a whole.
CBR: Russian economy will continue to “feel the bottom” in the coming months