The Central Bank considers the continuation of the credit boom after the key rate increase to be inertia
[ad_1]
The September bulletin of the Bank of Russia, published yesterday, records in detail the reactions of the Russian economy to the first actions of the regulator that can cool its overheating. Since the Central Bank’s review is based mainly on August data, de facto it shows a mixed picture of economic inertia “at the turn” from moderately soft to moderately tight monetary policy. On the one hand, the Bank of Russia is recording the beginning of a decline in imports – back in June-July, TsMAKP analysts recorded its acceleration; on the other hand, an acceleration of both corporate and consumer credit in anticipation of new rate increases and an increase in ruble revenue from exporters, fueling an already overheated economy . This, in turn, increases inflationary pressure, threatening inflation due to inertia to go beyond the regulator’s forecast of 6–7%, and shifts the Central Bank’s rhetoric towards lengthening the period of strict monetary policy in order to extinguish it.
The review “What Trends Are Saying” for September 2023 contains a portion of data on the first reaction of the Russian economy to the tightening of monetary policy. Due to the inertia and heterogeneity of economic processes, these are mixed signals: for example, one of the unexpectedly rapid manifestations of the reaction was a decrease in imports. “Judging by current data, imports of goods began to decline in value and physical terms, adjusted for the seasonality of the summer months. This reaction of imports is expected against the backdrop of a significant weakening of the ruble since the beginning of the year and represents the main mechanism for adapting the balance of payments to a decrease in the foreign trade balance and current account surplus,” the Central Bank notes. Let us note that, according to CMACP estimates, back in June-July, imports of goods grew at an accelerating rate. However, so far the import of goods has decreased slightly – from $25.5 billion in July to $25.1 billion in September, although the Central Bank also points to a decrease in physical volumes of supplies.
The growth of ruble revenues of exporters and corporate and retail loans “further warms up domestic demand,” the Central Bank notes: due to different planning horizons, economic inertia is stronger here. A moderate decline in commodity prices amid weakening global demand has not yet affected aggregate export supplies from the Russian Federation: according to the Central Bank, in September the current account surplus increased to $9.6 billion against $5.7 billion in August (in July the account balance was $1.3 billion), including merchandise exports in September amounted to $38.2 billion, an increase of $1.8 billion compared to August (by July the increase was more significant – by $6.7 billion).
However, in the future, the strengthening of the ruble may reduce the magnitude of the “impulse” associated with ruble revenues of exporters. The revenue itself will likely depend on the conditions of individual markets: due to sanctions, the dynamics of Russian supplies may differ from global trends. The introduction of requirements for the mandatory sale of foreign currency earnings, obviously, should be a “pro-inertial” factor – it will lengthen the reaction of exporters to changes in monetary policy. However, today the parameters of the introduced selective currency control measures are unknown (but they are known to the Bank of Russia), so the scale of this effect is impossible to assess; apparently, it is of secondary importance.
The regulator insists on the temporary nature of the “moment of inertia” and in the surge in lending: according to Central Bank analysts, “in the corporate segment, companies could choose limits on previously approved credit lines, anticipating a review of conditions by banks,” the review says, and the growth of unsubsidized segments of retail lending “could slow down” if demand for subsidized loans continues to grow. Changes in monetary policy in July-September, due to the same inertia of economic processes, did not have time to affect economic activity: it “remains high, catching up with steadily growing demand,” and surveys of enterprises and most operational indicators for September indicate an acceleration in the growth of an overheated economy (see . also “Kommersant” dated October 6).
Due to this decision on the rate, it did not have time to be reflected in the slowdown in price growth: adjusted for seasonality, in September it became the maximum since April 2022. Fueled by an influx of liquidity, the expansion of demand stimulates the growth of output and employment, as well as “the optimism of companies, allowing the growth of costs to be more quickly translated into selling prices,” explain Central Bank analysts, counting on a “gradual slowdown” of inflationary processes “in the coming months and quarters.” The regulator directly connects a separate inertial moment, which is heterogeneous, with budgetary stimulation in 2024. Thus, due to the increase in budget injections, “industries related to government procurement and financing will develop more actively,” and industries that depend on attracting credit funds on market conditions “will likely grow at a more moderate pace,” the Central Bank states, warning that the impact of the fiscal stimulus “may require additional monetary policy stringency.”
The hypothesis itself about the unexpectedly large-scale inertia of the economy’s reaction to the monetary policy measures taken, if accepted, suggests that, despite the slow reaction of financial markets to the decisions of the Central Bank in August-September, there will be no systemic surprises – there may be a rate adjustment in the coming months in this case only technical, which limits it to 2–3 percentage points. The assumption of inertia can, in principle, be confirmed by the fact that the main problem of the Bank of Russia when making decisions on the rate is the uncertainty in the time with which the effect of pass-through of the exchange rate into prices is realized in the economy: monetary policy will be effective in any case, the only question is whether the peak of the effect can be observed quite quickly (one to three months from making decisions on the rate) or very slowly (six to nine months), and the boundaries of deviations of macroparameters from the calculated ones in this case are not wide. If what is happening is explained not only by the inertial factor (which, in turn, comes down to the complex dynamics of inflation expectations among different groups of economic agents), but also by structural changes in the economy observed only over time, which are taken into account in Bank of Russia models more difficult and often after the fact, — a situation where the Central Bank greatly revises the forecast and raises the rate at the same time will continue to repeat itself. In this case, expectations for a rate increase in at least the next two quarters should be significantly higher than for the “inertia” hypothesis, if only because these shifts should be large-scale and unusual enough to deceive Central Bank economists for several months.
[ad_2]
Source link
