The Financial Congress of the Bank of Russia opened in St. Petersburg

The Financial Congress of the Bank of Russia, an annual event dedicated to trends at the intersection of economics and finance, has opened in St. Petersburg. The main topic, predictably, was the structural transformation of the economy and financial markets in the conditions of foreign trade that have changed dramatically since the beginning of 2022. A year ago, there was no point in discussing how the Russian military operation in Ukraine and the largest wave of sanctions in the world history against a particular jurisdiction affect the economy, there was no point, since the main trends were not determined. In July 2023, at least an initial discussion of the configuration of the stationary state of the economy and financial markets of the Russian Federation after the initial adaptation, as well as when it can be achieved and what are the scenarios for further development, became possible.

Structural transformation of financial markets was the main informal market topic of the first day of the Fincongress. The rapid depreciation of the ruble since the beginning of July 2023, without “significant” events easily explaining the situation, was the main subject of questions for the leadership of the Central Bank in St. from conducting active operations that affect the medium-term balance in the foreign exchange market. The departure of the ruble for 90 rubles / $ can be easily formally explained by the state of the balance of payments in the second quarter of 2023 (data on it will be published next week) – it has significantly weakened. But there are no specific reasons and even grounds for a rapid rather than gradual weakening of the ruble on the market, as well as substantive information about major conversion transactions; information on the dynamics and geography of cross-border payments is not enough to distinguish the fundamental weakening of the ruble from that caused by problems of foreign exchange liquidity and the “thin” foreign exchange market. Despite the fact that the head of the Central Bank, Elvira Nabiullina, devoted part of her speech at the plenary session of the Fincongress to commenting on what is happening (mainly with reference to the balance of payments), for the Bank of Russia, questions about “what is happening with the ruble” are hardly comfortable, since its role in what is happening is not visible, and the most important topic for the Central Bank at the Congress is the discussion of the next stage of the Monetary Policy Review (MPR).

The active part of the second stage of the review, as a set of measures to clarify the practices and procedures of the Central Bank related to inflation targeting, took place in June-July 2023, the Fincongress de facto completes it – after the Bank of Russia will discuss the possibility or impossibility of certain changes in its policy ( usually for the next five years) and will fix the result in the draft (August 2023) and the final version (November 2023) of the Guidelines for a unified state monetary policy. A year ago, the main question for the results of a future review was the possibility, admissibility and necessity of changing the Bank of Russia’s inflation target (from 4% per annum presumably to 2%, as in the largest developed economies) and related topics – for example, the format of this target (point, range tolerances, other options). At the Fincongress and at the events of the Central Bank around it, the main opinion about the future decision of the Central Bank became more or less unambiguous: there was a possibility of reducing the target by the end of 2021, but the structural transformation of the economy rather contradicts this idea, and in the absence of prerequisites (including in the world) for rapid disinflation, the maximum that the Bank of Russia can afford is a discussion of future inflation targets for the future, but not a solution.

In this situation, the actions of the Central Bank in 2022–2023 to stabilize the financial sector became the natural “macroeconomic” topic of the Fincongress — this, in particular, was the subject of a session on the coordination of the monetary policy and policies to maintain financial stability (the reaction of the Bank of Russia in March–April 2022 and later in was largely perceived as actions within the framework of the monetary policy, but in order to maintain the stability of the financial system). On July 4, the Central Bank released a report evaluating the effectiveness of its anti-crisis measures in 2014-2015, 2020 and 2022, which on the whole rather confirms this assumption and the rather high effectiveness of this combination: according to the Bank of Russia, the measures taken provided about 5.5% of additional credit in banking portfolios – “anti-crisis regulatory measures can be supplemented and strengthened by measures from the monetary policy,” the document states.

Dmitry Butrin, St. Petersburg