Nabiullina’s annual report in the State Duma was not without criticism

Elvira Nabiullina’s meeting with State Duma deputies generally took place in a “warm friendly atmosphere,” as the Soviet-style newspaper Pravda would have reported. The bulk of legislators reacted quite favorably to the annual report of the Central Bank for 2022, noting the great work done by the leadership of the Russian regulator in the face of sanctions and geopolitical tensions. At the same time, the activity of the Central Bank was traditionally criticized by its constant opponents in the deputy corps.

The pivotal theme of Nabiullin’s speech was, as usual, inflation and the key rate. In March, the consumer price index fell to 3.5%, the seasonally adjusted monthly increase is close to 4%.

In general, according to the head of the Central Bank, inflation expectations of both citizens and businesses are clearly higher today than in 2018-2019. In addition, “external conditions remain difficult,” which means that there are no grounds yet for either a rate cut or the removal of foreign exchange restrictions.

“If we sacrifice price stability now, we will not be able to protect our citizens from shocks in the future,” Elvira Sakhipzadovna noted, stating that the Central Bank keeps the ruble floating and will interfere in the foreign exchange market only in case of critical threats.

Nabiullina pointed to the importance of credit resources at the stage of the structural transformation of the economy: “We have temporarily removed capital allowances, and this has freed up additional lending potential by 15 trillion rubles. Our incentive regulation measures will increase this potential by another 10 trillion rubles.”

Mortgages, the digital ruble, and financial fraud were also among the stories presented in the final report.

In the first case, Nabiullina recalled the main goal of mortgage programs – the availability of housing for the population: “so that the price of an apartment, the amount of the loan that people have to pay for many years, are affordable for them, not be excessive compared to their future income.”

Regarding the digital ruble, the head of the Central Bank said that it will become a means for payments and settlements (and not savings), that transfers will be absolutely free for users, and that the regulator has determined the amount of 300 thousand rubles per month for each to replenish the digital wallet. Recall that the draft law on the digital ruble, which should enter consumer circulation by 2030, was approved by State Duma deputies in March in the first reading.

As for the topic of fraud, Nabiullina noted that banks should bear responsibility for the illegal actions of malefactors, since “now the consequences of social engineering are disentangled only by the people themselves.”

The general approval mood of the parliamentarians was expressed by Anatoly Aksakov, Chairman of the Financial Market Committee. He gave a high assessment of the activities of the regulator, in particular, on the creation of a national payment system: “After the withdrawal of Western partners from the Russian market last year, the correctness of this decision became as obvious as possible … Such a speed and depth of reaction, such a great work showed how correct position was taken by the leadership of the Central Bank.

At the same time, there was a portion of rather tough controversy, which was initiated by well-known opponents of the Central Bank in the State Duma. Thus, independent MP Oksana Dmitrieva stated the need to “revise a number of dogmas and recipes of monetary policy that have been developed in the interests of certain countries and transnational corporations.” According to her, these include “the use of the key rate for inflation targeting, which has the effect of suppressing economic growth and investment.”

Exactly the same thing, recalling the events of the spring of 2022, was also said by Valery Gartung, a deputy from A Just Russia: “When you raise the rate from 9.5% to 20%, you automatically increase the cost of money for the economy, and in fact curtail funding economic activity. The consequences were very severe, and no one now critically assesses this.”

Representatives of the same faction turned to Nabiullina with a rhetorical question regarding the freezing of gold and foreign exchange reserves and the zone of responsibility of the Central Bank, which allegedly missed this step on the part of the West: “I would like to know who from the leadership of the Bank of Russia suffered what punishment for their actions or inactions, which the impression of criminal negligence on an especially large scale.

Nabiullina replied that no one could have foreseen such a scenario, but the Central Bank was aware that in the face of geopolitical tensions and various risks, it was necessary to consistently diversify the structure of international reserves. This has been done since 2015: as a result, the share of the dollar decreased, while the share of the yuan (almost from zero) and gold increased.

Well, regarding the “inappropriateness” of raising the key rate, the head of the regulator recalled: all the leading countries of the world – both friendly and unfriendly – adhere to just such a consumer price targeting regime as the most effective. As for high interest rates on loans, they are mainly associated not so much with the key rate, but with the expectation of future inflation.

“If you let the genie of inflation out of the bottle, it is very difficult to put it back in,” Nabiullina summarizes.