… Gave CB a signal of too low inflation

The Ministry of economic development observes the tightening of monetary conditions and considers it as one of the risks for economic growth, announced on Thursday, April 13, at a government meeting the head of the Ministry Maxim Oreshkin. The reason is a combination of growth of real interest rates and significant strengthening of the ruble, he explained.

“The preservation of the current terms, according to our estimates, could lead to slower economic growth by mid-year, and the rate of inflation in this scenario will fall to the end of the year below 3%. Currently, inflation fell to 4.2%, which is better than any of the predictions that were at the beginning of the year,” the Minister said. From June 2016, when the Bank of Russia resumed rate cuts after a year break, the annual rate of inflation declined by 3.3 percentage points and the key rate has decreased only 1.25 PP

Is there a conflict?

Statement. indicates a “conflict of interest” between the Ministry and the Central Bank, said the head of the foreign exchange and money market Metallinvestbank Sergey Romanchuk. “The Ministry of economic development interested in a lower real interest rate as one of the mitigating factors for economic growth, while the main objective of the Central Bank is to control inflation,” he notes.

If the monetary conditions and the truth will hinder economic growth, this will be an additional motivation for the Central Bank to lower the rate, points Romanchuk. Statement. — “the hint”: the Ministry is advantageous that the Central Bank has lowered the rate faster, says a leading expert of the Center for development HSE Mykola Kondrashov.

Words. to perceive as a signal of the Central Bank it is impossible, argues the chief economist of “Renaissance Capital” in Russia and the CIS Oleg Kuzmin, the statement of the Minister only linked the ruble with the inflation rate. If the Central Bank will see that inflation is approaching 3%, and so it can start quicker to cut rates, which will lead to the weakening of the national currency. “I don’t think it’s a direct message from the Ministry of economic development to the Central Bank. As I understand it, they now have well established interaction. If one or the other something’s bothering you, they can directly discuss,” — emphasizes Kuzmin.

At the same time on economic growth and inflation may hit the lower oil prices, says Kondrashov. The Central Bank is in a “very difficult situation”: if the regulator will lower the rate faster, and the economic situation will worsen (low oil price, poor harvest, the tightening policy of the fed), the risks of accelerating inflation will rise, affect this controller some time can not. Now the Central Bank is “very important year”: he needs to keep inflation within 4%, highlights Kondrashov. “At stake is the reputation of the Central Bank, now everything is just starting to trust him. The Central Bank is unprofitable to go on about economic development,” he says.

Fear is strong ruble

The growth of imports and a seasonal deterioration in the balance of payments in the summer will lead to the formation of payments deficit account, which in turn will create preconditions for the weakening of the ruble, explained. at the meeting of the government. If strong exchange rate of the national currency will continue, inflation will decline faster. But too low inflation will be a signal for the Central Bank and the regulator will be forced to more aggressively ease monetary policy, which will weaken the ruble, said Oreshkin.

The basic scenario of economic development, which the government adopted as the basis for work on the budget, in its updated version involves the slowdown of inflation by the end of 2017 to 3.8% with a simultaneous weakening of the national currency to the level of 68 rubles per dollar at an oil price of $40 per barrel or up to 62 RUB if the current oil prices (Brent price is around $55 per barrel). In the next three years the Ministry of economic development predicts the same inflation at 4% with a nominal weakening of the rouble against the dollar, but strengthened in real terms.

Nothing wrong with inflation below 4% no, the Central Bank can always raise it with solutions at a rate, said Kondrashov. In this respect the situation in Russia is radically different from the situation in other countries where to ease monetary policy have nowhere to go, he explains. “There is no threat of deflation is really here at all. Moreover, the Central Bank it would be very beneficial in terms of PR, and would affect inflation expectations,” — said the expert.

As a weaken rate

About the prospects for the reduction of the key rate on Thursday at the financial stability Forum, said the first Deputy Chairman of the Bank of Russia Ksenia Yudaeva. She did the traditional emphasis on the fact that monetary policy should be moderately tight. This is necessary to maintain inflation at a level close to the target and reduce inflationary expectations, taking into account internal risks. “The current balance of risks allows for lower rates, but monetary policy should still be moderately hard”, she said. However, in the monthly Bulletin of the Department of studies and forecasting of the Central Bank, published this week, it was noted that the existing balance of risks speaks in favor of a gradual easing of monetary policy.

In order to consider the statement. appeal to the easing of monetary policy, “the obvious reason” no, insists chief economist, Eurasian development Bank Yaroslav Lissovolik. With the tightening of the external background, the outflow of capital and a possible weakening of the ruble, it becomes obvious that the General course of monetary policy easing by the Central Bank should be sufficiently smooth, he says. “We have to consider the factor that the actions of the regulator and interest rate policy in General, are very important factors to stabilize the economy. Rather Oreshkin speaks of the need for a balanced approach to strategies for further reduction of the key rate”, — says Lissovolik.