Life has become better, expecting worse – Newspaper Kommersant No. 26 (7471) of 02/11/2023

The key rate of the Bank of Russia has been maintained until March 2023 at the same level of 7.5%, however, it is highly likely that this spring a cycle of its increase will begin, apparently short and, most likely, small. The Central Bank’s forecasts for 2023, including on the balance of payments, are significantly improved, and a slightly more expensive loan amid greater inflationary pressure is supposed to pay for a better-than-expected state of the economy in the fall. On the horizon of two years, expectations have become a little worse: the budget substitution of private investment has a limit, and in 2024, according to the Bank of Russia, it will be felt by the corporate sector, but not by the working population.

At its meeting on February 10, the Board of Directors of the Bank of Russia did not have any meaningful reasons to change the key rate, which has been kept at the level of 7.5% per annum since the fall of 2022 – the minimum and, so far, apparently, an accidental increase in the level of weekly inflation does not count, the previous “zero » The signal of the Central Bank to the markets at the December meeting of the Council was fully justified. However, significant changes have taken place since the beginning of the year: this time the Bank of Russia has given a very definite point of view on what will happen in the coming months in the economy (this is not only the forthcoming formal March collapse of inflation “year-on-year” below 4 % – it is inevitable and means little) and how the Central Bank will react to it. The logic of the Central Bank is also expressed in the new version of the forecast of the Bank of Russia for 2023-2025 (the regulator has not yet given a forecast for 2026, and the forecast for 2025 is largely a formality; in reality, in the new version, calculations for 2023 and to a lesser extent matter degrees for 2024) – it has been revised in comparison with the October 2022 version, as well as the forecast for the balance of payments of the Russian Federation.

The practical result of all the clarifications is more clarity from the Central Bank: at the next meetings of the Board of Directors, the key rate may be increased if inflationary risks increase.

The list of reasons for them to intensify is very extensive – from the formal and actual increase in government spending in 2022 (including the problem of the “wandering trillion” – see Kommersant on January 30) to the growth of credit and economic activity and the state of the labor market. The list of reasons why the key rate, at least theoretically, could be reduced is extremely short, although not formal – this is (not expected by the Central Bank) an increase in the population’s propensity to save to limit current consumption and “faster adaptation of the economy, accompanied, among other things, by active restoration of imports.

Although the Bank of Russia does not talk about the cyclical nature of the ongoing changes in the economy, as a first approximation, it is quite possible to consider the coming months as a period of cyclical growth and an increase in the key rate. Based on the data of the revised forecast of the Central Bank, this mini-cycle will be short (a year and a half) and not intense. It is quite imaginable, although unlikely in itself, that the key rate will remain stable at the level of 7.5% per annum throughout 2023 (until the end of the year, the forecast range for its average value is 6.9–9.2% per annum, for 2024 – 6, 5–7.5% per annum). But there are simply no significant reasons to reduce the value of the rate in the coming months.

Little has changed in the logic of the Central Bank, while everything that is happening is well described in the logic of the coordinated game between the Bank of Russia and the government – the increase in budget spending at the end of 2022 relieved the Central Bank of fears of too low demand and removed all questions about stimulating economic growth: this has already been done by the White House , In response, the Bank of Russia only needs to focus on its own business — to keep inflation within the “target” area of ​​4% per annum or de facto slightly higher for 2023 (on average for the year at the level of 4–5.3%, as in the new forecast of the Central Bank ).

At a press conference, the head of the Central Bank, Elvira Nabiullina, made the reservation that so far all the regulator’s calculations are based on the government’s decisions on the growth of government spending — if the White House decides to raise them further, the growth and rate cut curve in 2023-2024 may be a little steeper. But it’s too early to talk about it.

At the same time, it is not too early to talk about how the current state of the labor market fits into the calculations of the Bank of Russia – the unemployment rate in the Russian Federation (with employment growth) has reached a historical minimum of 3.7%, which in all respects should mean a frontal shortage of personnel in all growing countries. sectors of the economy, which, in general, is observed – and is accentuated by the outflow of part of the population abroad in 2022, the reaction to the military operation of the Russian Federation in Ukraine, which remains an irreversible background of all events in the economy. The Bank of Russia does not yet know whether unemployment will decline further, however, in its forecast for 2023, the assumption of a decrease in household spending has been replaced by an assumption of an increase of up to 2%: the pressure on employers is growing, there are few qualified specialists, including in Due to demographic reasons, more than that, the threat of wage fund growth significantly higher than labor productivity growth is more than real – and this is a pro-inflationary factor that is unlikely to cancel anything in the coming years.

However, in the short term (2023), it is precisely this circumstance that will make it difficult for the majority of the population to notice certain, but accumulating problems in the economy that accompany greater economic growth than the Bank of Russia could have expected. The Central Bank speaks cautiously about these problems, although they are visible in the new version of the forecast.

For example, there was no strong decline in gross fixed capital formation in 2022 (a decrease of 5.7% against the Central Bank’s expectations of 10.5–11.5%), and it is not expected now in 2023 (they are expecting an increase of 0.5– 3.5%, this is mainly the result of government investments), but it is expected for 2024 in the amount of 1-4%. In a simplified form, in these figures, the Central Bank claims: budget consolidation is inevitable, excess profits, including the budget, received as a result of an unusually high (and mainly caused by a military operation) conjuncture in 2022, are finite, the state, with all its desire, cannot replace based on private investment by the state. In 2023, you can not think about it – but then you can’t not think about it, the nationalization of the economy will change the whole picture.

A separate point in the new forecast of the Central Bank is the revised expectations for the balance of payments. The current account outlook for 2023 has been significantly downgraded, with a $66 billion surplus expected vs. $123 billion expected.

However, the forecast for 2024 and 2025 has been improved: import forecasts have been revised on an ongoing basis (by $20-40 billion per year), export expectations have been worsened for 2023, but improved for 2025. In verbal form, the conclusions from these assumptions of the Central Bank can be formulated as follows: although the ruble has reason to be weaker than expected earlier this year, the threshold near which the state of the balance of payments should lead to rapid devaluation, or at least exchange rate instability, in the coming the market will not reach for years – the ruble will remain approximately as strong a currency as it is now. It should be noted that the parameters of the Bank of Russia oil price forecast are now very simple (despite the fact that the Central Bank is not yet able to evaluate in numbers the effectiveness of the partial embargo of the G7 countries on Russian oil products): it is $55 per barrel over the entire forecast horizon. That is, any barrel sold from the Russian Federation for more than this level will support the ruble, its “strategic” weakening does not follow from the calculations of the Bank of Russia.

Probably, at least in part, the reason for the greater confidence of the Central Bank in both the negative and positive components of the new forecasts is the “numbering” of the limited effects of sanctions and trade embargoes, the recognition of the absence, at least now, on the medium term, of strong degradation trends in restructuring of the economy, confirmation of the responsibility of the government’s fiscal policy. If any of these components changes, the forecast, the key rate, inflation parameters, and much more will change. But while all this is true, the Bank of Russia is waiting for such a state of the economy that can be considered prosperous – of course, if everything else does not bother.

Dmitry Butrin