Elvira Nabiullina in the State Duma revealed the reasons for increasing the key rate

The Bank of Russia was forced to increase the key rate in order to reduce losses for both citizens and businesses. Actually, the entire plot of the plenary session in the State Duma on Thursday, November 16 revolved around this thesis from Elvira Nabiullina. In her speech at the “government hour,” the head of the Central Bank seemed to justify herself to legislators for an unpopular, but, in her words, inevitable decision. At least that’s what it looked like from the outside. Not all deputies believed Nabiullina.

“We understand that many are concerned about the increase in the key rate. But, believe me, all the calculations and all our experience show that if we had not done this, if we had not responded in time, then the losses from this for citizens, for business, and for the state would have been much greater,” Nabiullina said , presenting to the deputy corps the report of the Central Bank on the Main Directions of the Unified State Monetary Policy for 2024 and the period of 2025 and 2026.

“We are sometimes reproached that we have raised the rate excessively, that it is more than twice as high as current inflation. Let me start with the fact that annual inflation has been consistently growing since June, now it is already more than 7%, and in accordance with our goal of 4%, this increase cannot be called harmless,” the head of the regulator also noted. In principle, it affected all the main pain points of the Russian economy – the situation with preferential mortgages, rising housing prices, labor shortages, unstable ruble exchange rates, deteriorating loan quality. The Central Bank, according to Nabiullina, is alarmed by the fact that the increase in the mortgage portfolio (by 32% over the last 12 months) is accompanied by an increase in prices for new buildings (by 90% over the last three years).

Here are the key points from the speech of the head of the Central Bank: preferential mortgage lending programs should be targeted and differentiated by region in accordance with the income level of the population; a massive government program, appropriate during the Covid pandemic, led to regional imbalances; talk about the unavailability of credit for business is exaggerated; capital outflow from the country has decreased by six times compared to 2022; Russians returned 200 billion rubles to deposits in September-October, which indicates an important change in their behavior; the economy recovered after the crisis much faster than forecast and continues to grow – this applies to production, consumption, and investment in fixed capital; Business optimism remains high.

“We see,” Nabiullina noted, “that restrictions in the availability of physical resources are growing – first of all, the lack of labor. On an economic scale, competition for the same workers leads to wages rising faster than labor productivity. It is easier to pass on the growing costs of an enterprise to the consumer, since his income is also growing.”

The head of the Central Bank spoke quite substantively and intelligibly on the topic of the national currency exchange rate. According to her, the weakening of the ruble, which began in mid-2023, was a direct consequence of the fact that increased domestic demand due to restrictions on domestic production led to increased demand for imports. But the demand for imports grew precisely in rubles, but there was no more foreign currency and export earnings. At the same time, the theme of the key rate sounded again and again, like a repeated refrain to everything that was said. “It is a mistake to think,” said Nabiullina, “that it would have been possible not to raise the key rate, and then loans would have remained as accessible as before. Banks will not lend at a loss, at rates below inflation.”

The “government hour” was not without a conceptual dispute, or rather even a conflict. As always, the troublemaker turned out to be a deputy from the “A Just Russia – for Truth” faction, economist Mikhail Delyagin. “You complain that you are forced to raise the key rate due to an increase in demand, which supply cannot keep up with, which creates inflationary risks,” he turned to Nabiullina, “But isn’t this caused by the policy of the Central Bank itself, the goal of which is to artificially starve Russia created by a cash famine, prohibitive interest rates, even up to 7.5%, exceeding the profitability of the manufacturing industry?”

“Do you think it is normal and correct that it is your policy that makes credit prohibitively expensive, leads to a massive flight of all free capital from the country and, ultimately, the destruction of Russia,” the deputy asked the head of the regulator.

Of course, she disagreed, noting that it was too early to talk about prohibitive loan rates, and that loans remained quite affordable for the population and business. This is evidenced by the annual dynamics in each lending sector: +20% in corporate, +30% in mortgage, +15% in consumer. As for capital outflow, this is a completely natural tendency with a positive trade balance, in a situation where exports exceed imports. But this year in Russia the balance has fallen six times compared to last year.