SHANGHAI, February 29. CBR looks at February data on inflation expectations with “cautious optimism”. About it journalists were reported by the Chairman of the Bank of Russia Elvira Nabiullina.
“I must say that the last of the February data give us some cautious optimism that inflationary expectations, despite the depreciation of the exchange rate (ruble – approx. ed.) did not increase and even slightly decreased. We hope that this momentum will be sustainable,” said she.
Inflation and inflation expectations are key factors in making the Central Bank decision on key rate policy under inflation targeting. Inflationary expectations of the population in January decreased slightly compared to December to 10.9 12.8%.
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Nabiullina also added that today, there is a traditional set of inflation risks. “Possible external shocks associated with the movement in oil prices, exchange rate dynamics, we can never dismiss, therefore, this risk scenario from the point of view of possible additional inflationary risks. Inflation expectations is also one of the factors of inflationary risks,” she explained.
While the regulator has not yet assessed the contribution of the ruble weakening at the beginning of the year the rate of annual inflation, although it recognized relevant similar assessment of the Ministry of Finance (2.5 percentage points). “For January-February is very difficult to assess the contribution of exchange rate dynamics to inflation, because it took a little more time, we cannot estimate the effect of the transfer. But at the current weekly inflation we see that it is kept to 0.2% stable. In our view, this shows that the effect of the transfer is not very high,” she added.
In addition, the CBR believes “sizable” risks of deviation of inflation from the 2017 target (goal of the Central Bank on inflation – approx. ed.) in 4% in risky scenario.
“In the baseline scenario we keep the target of inflation for 2017, if there are no further major shocks, the achievement of the target is possible in risky scenarios. But in a risky scenario, the probability of deviation from this purpose, there is, it is rather big,” predicts the head of the Bank of Russia.
The achievement of the inflation target to 4% in the medium term is the main objective of Central Bank policy of inflation targeting. Low and predictable inflation over an extended period of time is the most important criterion of macroeconomic stability of the state.
The decline of the GDP
Nabiullina said that the Central Bank of Russia preliminary estimates the GDP of the Russian Federation in 2016 in 1-3%, in the fourth quarter of quarterly growth possible.
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“Depending on the scenarios a preliminary assessment of the fall in GDP in 2016 – from 1% to 3%. We in the baseline scenario see the possibility that by the end of the year, in the fourth quarter, we will see a positive growth QoQ”, – she said.
In the latest forecast of the regulator on 11 December, the Central Bank predicts decline in GDP in 2016 and 0.5-1%.
According to her, the risks of continuing economic recession remain, “although the January figures for economic growth show that growth rates decreased in comparison with December. In March, we will analyze the balance of risks now while this assessment”.
Nabiullina also noted that inflation risks remain high, although growing in recent years. “We see it and on the dynamics of inflationary expectations and current inflation. And oil prices, although very volatile, have a tendency to unilateral movement, the fall,” she added.
On the capital outflow
The Central Bank has improved the assessment of capital outflow in 2016 to $30-40 billion with oil price of $25-35 per barrel against $53 billion in the December forecast, said Elvira Nabiullina.
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“We have assessment (of capital outflow – approx. edition) – $30-40 billion, our current valuation in the price of oil is in the range of $25-35 per barrel. In any case it will be almost two times lower than in 2015, this year we expect a further reduction in the outflow of capital,” she said, explaining that the outflow of capital will be reduced by reducing the repayment of foreign debts, “because our main source of outflows – repayment of foreign debts, and not the increase in foreign assets”.
In 2015, capital outflows amounted to us $56.9 billion in 2014 from Russia’s private sector had exported a record $151,5 billion
The rejection of the optimistic scenario OST in new Outlook
The CBR declined from the optimistic scenario of the monetary policy (DCT) in the new macroeconomic forecast, which is expected to be published on March 18, said Nabiullina.
“$25 per barrel (oil price – approx. ed.) – draft (risk scenario – approx. ed.), we will clarify the background script to the end of March this year, including our hypothesis for oil price for the baseline and risk scenario. An optimistic scenario is not yet calculable,” he said.
The Central Bank says macroeconomic forecast every quarter. The next report on monetary policy, containing refinements to the macroeconomic forecast will be published after the next meeting of the Board of Directors of the regulator – 18 March.
The latest forecast of the regulator (from December 11) comes from oil prices at $50 per barrel in the current year, reduce GDP by 0.5-1% and inflation at 5.5-6.5 per cent. While the Ministry and the Finance Ministry has already formally adjusted their forecasts to the downside amid a significant drop in oil prices.
About depucelage banks in the required reserves on deposits
The Bank of Russia for April 1, will decide whether to increase contributions in banks ‘ required reserves on deposits, said Nabiullina.
“This issue is in the process of internal discussion. Discusses the advisability of this step, the measures of expulsion, will be imposed if the differentiation of deductions in obligatory reserves on foreign currency deposits and on rouble, including the terms of the deposits, to which it will spread. Everything is in the process of internal discussion. Will try to decide by the first of April,” she said.
Earlier it was reported that the Bank of Russia proposes to establish elevated risk coefficients on foreign currency assets (loans and investments in debt instruments denominated currency), for additional coverage equity currency risks of the banking sector.
The budgetary rule
Nabiullina supports the idea fiscal rules: government revenues from the temporary increase in oil prices have not to spend money, and go to the reserves. However, the specific proposals of the Ministry of Finance about the new budget rule in the Central Bank had not yet seen.
According to the budgetary rule, the additional oil revenues obtained from the difference between the actual price and the cutoff price for oil should be directed to reserves and not to increase spending.
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“I am, in principle, support an ideology that is very important for us medium-term fiscal sustainability. And income from a possible temporary price increases, of course, needs not to spend money, and to go into reserve funds to create a safety cushion in order to appropriately reduce the influence on the currency market,” she said.
The Chairman of the Bank of Russia clarified that the specific proposals of the Ministry of Finance under the new fiscal rule at the Central Bank is not seen. “We have heard suggestions that the new budget rule should proceed from the fact that revenues above a certain oil price – about $50 per barrel, should go immediately into the reserve Fund. But how should this be implemented – have not yet looked,” said she.
As for the price cut and methods of its calculation, then, according to Nabiullina, it is a subject for discussion. “You remember the story of fiscal rules: approaches to the cut-off point is the most sensitive issue that is discussed. Either we must take the absolute value, or srednestatichesky or floating srednestatichesky. It is being considered,” she said.
Regarding the Ministry’s offer of the cut-off price, the head of the Central Bank did not raise objections. “I don’t think (the price of $50 per barrel too high – approx. ed.). Although great uncertainty exists with the price of oil, but I think the levels are certainly lower than those to which we are accustomed to 2014 what the level will be – I’m afraid difficult for anyone to say,” she said.
According to the previous budget rule for the formation of the Russian budget up to 2016, the maximum level of expenditure was determined based on estimated oil prices. The purpose of the rules is to reduce the budget’s dependence on the volatile revenues. The essence of the rule was to transfer to the Reserve Fund additional oil and gas revenues, after the amount of the Fund would exceed 7% of GDP, additional oil and gas revenues should be directed to national welfare Fund. Previous variant of the budget rule implied that if the oil price decreases, then the calculated price defined as the average over the past three years. After a sharp drop in oil prices in the past year, the rule actually worked, then the budget for 2016 was assigned to his suspension. This rule also sets a limit on the budget deficit in the amount of 1% of GDP.
About pension system
Nabiullina believes that the automatic “subscription” citizens in the accumulative pension system can become a reliable tool of pension savings for citizens.
“The government should create reliable instruments of such savings, in which citizens believe. For these voluntary savings should be a different kind of stimulus. We discuss them. There are different options: including tax, with options for automatic “subscription” to the accumulative system that exists in other countries. Matter where you are by default either in the switch or the cumulative” – said Nabiullina.
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She added that these options are discussed in the context of proposals to reform the pension system, which is working on the controller.
“We are preparing such proposals, developed, as we believe it is very important to speak about this, because the cumulative part of the pension system, in addition to its function of providing a decent level of pensions, gives the economy long-term money. On the basis of these long-term money may develop the financial market and, accordingly, to be financed, the economy and investment projects. This is an important structural element for the entire financial and economic system, so here we cannot be indifferent,” said she.
According to Nabiullina, the first thing needs Russia’s pension system is the overall balance.
“It was unbalanced in its distribution part, as the insurance pension is largely funded by transfers from the Federal budget. So all the time there are questions that the financing of the insurance part of the need to submit those payments that go to a fully funded system. This issue will always exist, until we have the overall balance of the pension system”, – said the head of the regulator.
In addition, she said, you must maintain a cumulative element. “He could not refuse. Let it be transformed, but it needs to be saved. In my opinion, it should go in the direction of greater motivation of the workers to accumulate”, – said Nabiullina.
Expenditures from the Reserve Fund
Spending from the Reserve Fund do not affect the currency market, said Nabiullina.
“Now these operations do not affect the currency market, because we don’t mirrored. The spending of the Reserve Fund in rubles, of course, and this is reflected in our relationships, Bank and Finance Ministry”, – she said.
In the past year, first Deputy Chairman of the CBR Ksenia Yudaeva warned that during the rapid expenditure of currency from Reserve Fund of the Central Bank must sell reserves, since the regulator will not be able to mirror currency sales, that is to take it into account through the operation of the Central Bank with the banking system.
In 2015, the Finance Ministry spent about 2.6 trillion rubles from the Reserve Fund to Finance budget deficit.-
About expansion of list of banks for placement of funds of state companies
The Bank of Russia supports the position of the Ministry of Finance on the extension of the list of banks which can accommodate the funds of state-owned companies.
“Those requirements are in some cases enshrined in legislation in connection with the placement of such funds were largely quantitative in nature and not related to the evaluation of the quality of banks and so on. But the approach to this issue should not be discrimination of banks by forms of ownership – state and private banks. In our view, the government may impose such requirements (funds to be state companies only in state banks – approx. ed.). Closer to us here the position of the Ministry of Finance, on a more extended list than the social block” – said the head of the Central Bank of the Russian Federation.
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Nabiullina added that the Central Bank as the regulator has no right to publicly assess the reliability of a Bank, as this can cause movement in the Deposit market.
“In any case, in my opinion, it should be done fairly smoothly, without creating a risk of sharp movements in the Deposit base of banks. Can graphics be gradual, transition and so on. It is necessary to provide,” she said.
However, the head of the Central Bank indicated that the reliability of placement of funds of state companies can be improved by increasing the responsibility of management of these corporations.
“Currently there are opportunities to improve the reliability of placement of funds of state companies, but this opportunity is not always in management of state companies and state corporations. Whatever criteria (to banks – approx. ed.) have not been installed, the necessary management responsibility of corporations for building relationships with partners, including banks and check their reliability and solvency. That almost had not been done in recent times”, – said Nabiullina.
According to her, analysis of the situation with the banks with revoked license, where the state-owned companies lost money, showed that the management of corporations is not always right that they have as a creditor to request additional financial information of the Bank.
“We see that these queries are practically no”, – said Nabiullina.
About Optibase to the auditors statements of financial institutions
The Bank of Russia intends to impose additional requirements on auditors that conduct the audit of the financial companies. The regulator has prepared the relevant amendments to the legislation, said Nabiullina.
“I believe that it needs more regulation of auditing activities, at least activities auditors who produce an audit of financial statements of financial companies. Should be additional requirements. We already prepared the amendments in the part concerning the financial auditing activity”, – said the head of the Central Bank.
According to her, it is that the Bank of Russia can establish requirements for companies who audit the financial statements of organizations.
“This is business reputation, first and foremost. The second is informing the regulator on various issues, primarily on the compliance of mandatory standards and on the revealed facts of unauthenticity in reporting that exist in many countries. We don’t have it, and in most countries, regulators have access to such information to auditors,” – said Nabiullina.
According to the head of the CBR, the issue of podnadzornoy auditors to the Bank of Russia is discussed.
“I think there probably isn’t important who will be the supervising authority, it is important to establish the requirements,” she said.
According to Nabiullina, listening to the reporting financial institutions should be permitted only those companies that will meet the requirements.
“I think the establishment of requirements to the listening of financial institutions and rightly so, because financial institutions operate with other people’s money, often quite large”, she added.
About the proposals of the bankers
The Central Bank of the Russian Federation to consider the proposals from bankers to mitigate elevated risk ratios for exporters ‘ foreign exchange earnings, said Nabiullina.
Earlier it was reported that the Bank of Russia from April 1, plans to increase the risk coefficients for new loans in foreign currency granted to legal entities and other investments in foreign currency assets.
“We are holding discussions with banks, the banks also expressed the wish that the credits to exporters has not been applied higher rates of risk. We are now discussing this issue, the main question is the administration of such a regime for exporters. Banks now propose, we will review and see whether it is possible to introduce such a differentiation”, said Nabiullina.
According to her, various mitigation options.
“There is a proposal on reduction of risk factors, but the main issue that we are discussing – on the exporters”, – she noted.
Nabiullina also said that the increase in risk ratios for these loans do not have any direct impact on the capital adequacy of the banking sector. “Because these higher rates will apply only to new loans. The regulation will not have a retroactive force,” she said.
Amendments to the currency law
Amendments to the currency law, which are discussed by the government to improve the effectiveness of the law on Amnesty of capital, should not create loopholes for the withdrawal of capital, Nabiullina believes.
“As I understand it is that the law on deofshorizatsii, the Amnesty worked. Colleagues from the government said that this requires amendments to the currency law. For us it is very important that if these amendments will be, we are interested in the law on Amnesty has worked well, but it is important that these corrections do not create loopholes for illegal capital flight,” insists the head of the Central Bank. According to her, until the regulator has reviewed these amendments. “If they are prepared by the government, we certainly will consider them”, – said Nabiullina.
As previously reported by the first Deputy Prime Minister Igor Shuvalov, Central Bank and the Finance Ministry will adjust the currency law for the success of the program of legalization of capital, as some norms of currency legislation now prevent Kikah legislation (controlled foreign companies – approx. ed.) and declare capital.