Oleg Sapozhkov on the unstable balance of state support and the fight against inflation
The Bank of Russia's latest increase to 19% per annum of the key rate was justified from the point of view of monetary policy at the time of its adoption: fresh data on inflation in August and early September, growth in lending, as well as additional inflationary effects of the decline in world oil prices with the need to return to a comfortable, from a macroeconomic point of view, 4% per annum growth in prices de facto fully predicted the regulator's position.
However, as in any meaningful discussion, its opponents have compelling arguments: you can’t do nothing and you need to do what brings results. The latest statistics from Rosstat on sources and contributions to GDP growth in the second quarter of 2024 (according to new data on what is happening in the industries, its estimate has been increased by 0.1 percentage points, to 4.1%) show that the highest growth in added value in Russia in annual terms is recorded in manufacturing (including the defense industry), trade, finance, the IT sector, and construction. In a quarter-on-quarter comparison, according to calculations by the Telegram channel “Hard Digits,” the growth of the Russian Federation’s GDP was accelerated by public administration, manufacturing, IT, construction, and the agro-industrial complex. Both of these sets of industries and the degree to which they coincide are largely due to government incentives, be it massive support for the military-industrial complex, benefits for IT, or — indirectly — trade, which is growing by “converging” state-stimulated demand with supply: there is no acceleration of industries independent of the state in them.
As a result, both the money market regulator and the government, responsible for adapting the economy to the new reality, find themselves in an endless cycle: to slow down the growth of prices, it is necessary to raise the rate; to prevent a decline in industries important to the state, it is necessary to neutralize the effect of the rate increase by increasing the stimulus for non-economic reasons. But the release of this money to the market will again raise prices, and the Bank of Russia will have to raise the rate again.
At the same time, both sides have the same de facto goals: the regulators of output use subsidies to accelerate production to a level at which prices will stop growing (and the rate will follow suit), while the Central Bank uses the rate to hold back price growth, ensuring that the market can accelerate output without government support. Neither side can give up an independent policy: the idea of involving the Central Bank in regulating economic growth was rejected years ago, the government has too few tools to regulate inflation in a stable situation - and the information about the allegedly existing coordinated policy and even a joint plan with the Central Bank to combat inflation, recently refuted by the authorities, confirms this. It is impossible to choose a side, it is impossible to force them to interact, what is left? To watch, fascinated.
