Alfa-Bank announced about the increasing pressure on the Central Bank


Pressure on the Bank of Russia increases, says chief economist at Alfa Bank Natalia Orlova in his review of April 20. “A number of economists, the most prominent of which is Sergey Glazyev, insist on the need to reduce the key rate of the Central Bank and even to pursue a more aggressive easing of monetary policy,” writes Orlov. These experts believe that the increasing monetization of the economy, you can launch economic growth, she adds.

Presidential adviser Sergei Glazyev regularly criticized the work of the Central Bank. In his words, “the Central Bank mindlessly follows the recommendations of the International monetary Fund to reduce the money supply and raise rates”. The Central Bank announced a policy of inflation targeting, however, the price level began to rise: “It’s as if the captain ordered full speed ahead, and the ship sailed back”, — said earlier the eyes. He thinks it happened because the Central Bank “let go” tools to affect monetary policy, and put all control to the regulation of interest rates. As a result, says Glazyev, the ruble was “abandoned”.

According to Glazyev, to stimulate economic growth, the Bank of Russia should issue. It estimates the required amount of 3 to 7 trillion rubles and believes that these funds should reach the real economy through banks at minimal or zero interest rate.

“Confrontation between the hard-line Central Bank, aimed at reducing inflation, and these experts are now extremely deteriorated,” writes Orlov. Representatives of the Central Bank in recent days have expressed concern about further development of fiscal policy, which through the growth of social spending can substantially increase inflationary risks, she adds.

For example, on Tuesday, April 19, speaking at the April international academic conference at the Higher school of Economics, first Deputy Chairman of the Central Bank Ksenia Yudaeva stated that “the failure relatively quickly to ensure that the appropriate fiscal adjustment may lead to increased volatility in financial and currency markets, to new shocks to economic growth.” In addition, according to Yudayeva, Russia’s economy is doomed to a “perpetual stagnation” unless the government will carry out structural reforms and create incentives for growth.

While Yudaeva insists that “the policy of Bank of Russia to reduce inflation to 4% and the policy is to achieve and more sustainable economic growth.” She noted that the Central Bank will build its policy in such a way as to achieve the target inflation of 4%, and then to keep inflation at this level.

The next meeting of the Board of Directors at which a decision will be made to modify or to keep the key rate, scheduled for Friday, April 29. According to Orlova, still too many arguments against a rate cut.

Economic statistics rather suggests that the rate reduction is unjustified, she States. “First, the growth figures are better than expected: in March, industrial output decreased only by 0.5% during our forecast of -1.5%, retail trade fell by only 5.8% yoy, nominal wages are still rising,” she writes. Secondly, the data on balance of payments, released a week ago, talk about a weak current account in Russia: “this means that the country needs resources to Finance the inflow of capital and reduced rates can only worsen the picture.” Finally, according to Bank statistics, in March the banks had not reduced its dependence on the Central Bank and continue to use the system of refinancing, rate reduction may create additional risks of the Central Bank, adds Orlov.

The only argument in favor of a rate cut, according to Orlova, is a slowdown of inflation. In March, inflation amounted to 7.4% yoy and may remain at this level in April. “However, inflation has now become less predictable, so it is unlikely that on April 29 the Central Bank will make a rate decision, focusing on the current inflation,” she writes, adding that she does not expect the rate cut at the next meeting.