There is money in the still waters – Newspaper Kommersant No. 207 (7408) dated 11/09/2022

The current level of the key rate of the Bank of Russia for the coming months looks optimal, and the overlap of various uncertainties plays into the hands of the Central Bank’s fight against inflation, which will almost inevitably end in victory over it already in 2023, unless there is a major global crisis, which, however, there is no reason to wait – these are the main theses of the next report of the Central Bank on monetary policy (MP). Among other things, Russian companies managed to capitalize on inflation in 2022: the Bank of Russia agreed with the assumptions that a significant part of their increased profits this year and taxes paid to the Russian budget will be associated with the departure of their foreign competitors from the Russian Federation, which, when making decisions on leaving for some reason was not expected.

The quarterly report on the monetary policy, usually published at the end of the month, is structurally linked to the quarterly forecast of the Bank of Russia and, on the other hand, to the latest decision of the Board of Directors of the Central Bank on the key rate in four “supporting” meetings that are not tied to a specific date. The October report can be considered the Central Bank’s commentary on the decision on the key rate on October 28, however, its meaning is somewhat broader – Bank of Russia analysts presented their vision of the macro situation for the coming months, assuming that the main factors (the military operation of the Russian Federation in Ukraine, sanctions and the prospect of restrictions on oil exports from the Russian Federation in 2023, partial mobilization, a decline in global growth) will remain the same as now. The main substantive question that analysts answer in the report of the Bank of Russia is what, from their point of view, should happen to inflation in a situation of growing and accumulating uncertainty for any business and enterprise in every sense of the word.

Among the new figures that became known after the publication, for the markets, apparently, the main one is the forecast of the Central Bank on the movement of the key rate. On average for 2022, it is indicated without a range with a value of 10.6% – given that the average before November 1 was 11.3%, the Central Bank thus indicates that, from its point of view, the key rate for the next almost two months should be between 7 .4% and 7.6% per annum. Considering that now it is 7.5%, it is not difficult to guess that Central Bank economists are offering the Board of Directors of the Bank of Russia not to change the rate during the quarter (horizon of the standard forecast correction). It should be noted that the same idea is, in fact, embedded in the forecast for 2023 – the key rate next year will be, according to the internal assessment of the Central Bank, 6.5-8.5% (7.5% per annum plus or minus one percentage point). ), and in analysts’ explanations of their ways of estimating the neutral key rate. Now the monetary policy of the Central Bank is considered moderately tight, it will be neutral, presumably, with a nominal key rate of 5-6% – an inflation target (4%) plus a neutral level of the real rate (1-2%). Perhaps later in these estimates “as information accumulates”, something will change, the Central Bank admits, but now a moderately tight monetary policy is just the current level of the rate, in which, at least in 2023, ceteris paribus nothing to change no need.

In the “Main Risks for the Baseline Forecast” chapter, the Bank of Russia explains that it may change its current view on the medium-term prospects. Among the pro-inflationary risks, that is, those that could force a rate hike, are new, even stronger sanctions, a global recession, “an increase in the labor market deficit” (probably including mobilization), fluctuations in the ruble exchange rate, and a strong additional increase in budget spending. systems. Disinflationary risks that increase the chances of a rate cut – a decrease in food prices within the Russian Federation (including due to external restrictions on exports), a faster recovery of imports than now, an increasing enthusiasm of the population for savings and investments – as opposed to consumption, including number on credit.

In principle, disinflationary risks look quite capable of materializing even quickly (for example, looking at consumer lending fall 2022).

The description by analysts of the Bank of Russia in the forecast structure of the block associated with pro-inflationary risks is less convincing. Thus, in the forecast, the Central Bank does not expect an annual decline in GDP in 2023 either in the US or in the EU, allowing a recession only in certain countries of the euro area, and in general, the Bank of Russia believes in the next three years rather in global stagnation (growth in the US at 0 .7-1.5%, in the EU – 0.3-1.8%, in China – an average of 5% per year, global GDP growth in 2023 – 2.7% after 3% in 2022), than in a global recession or crisis.

However, oil prices were left low in the forecast (analysts consider the long-term equilibrium price of Urals to be $55 per barrel, which is lower than the expected price cap for Russian energy exports), the physical volume of Russian exports in 2023 will decrease less than this year (by 7.5–11 .5% against a de facto decline of 15–16%), and imports in 2023 will probably not decline at all compared to this year. The thesis that the Russian economy will fall less than expected in 2022, but this fall will be extended in time to 2023, has already been put forward by the Bank of Russia, but in general, Central Bank economists are already quite confident that the adaptation of the Russian economy to sanctions are active. Apparently, the Central Bank’s fears about the state of the labor market are connected with the latter – the lack of migration inflow, emigration outflow and the growth of not demand, but staff shortages are clearly able, although not quickly, to slow down any pace of adaptation.

Let us recall that within the framework of the current monetary policy model, the goal of the Bank of Russia, which analyzes all these circumstances, is to return to the inflation target of 4% per annum. All the uncertainties are still adding up (more precisely, summed up) in favor of the fact that the Central Bank will succeed in this easier than previously expected. In this regard, it is interesting and important to analyze the Bank of Russia’s inflationary surge in 2022, which started with a “flight” of prices (caused primarily by a change in sentiment and sharp fluctuations in the ruble exchange rate) in the spring and a kind of “deflation” in the summer-autumn of 2023. In the review of monetary policy, the Central Bank also analyzes “cost-push inflation”, no longer using this term, which is often used for speculative purposes. Bank of Russia economists discuss “to what extent cost growth is transferred to consumer prices and what it depends on,” based on 2022 material. The Central Bank convincingly demonstrates the complexity and complexity of this process, which does not allow inflation this year to be reduced to slogan explanations (the dynamics of supply and demand in different episodes in different industries was very different, in contrast to expectations, which simply grew).

At the same time, the Bank of Russia proposes, among other things, to judge how the increase in costs (caused, according to the Central Bank, often simply by the global rise in the cost of intermediate products – this is clearly a “post-COVID” and global trend, which is usually explained by logistics failures) is reflected in the finances of companies. And here the Central Bank admits: the “crisis” of 2022, for all its drama for the corporate sector, is mainly an increase in sales profits, at least in the first half of the year. This applies to the agricultural sector, the food industry, and the production of clothing. “Enterprises managed to largely compensate for the increase in costs at the expense of buyers, the canopy of their deferred pressure with a significant pro-inflationary potential did not form,” the Central Bank states, recognizing also an equally important phenomenon: “expanding the ability of enterprises to raise prices could be associated with a decrease in supply due to with the departure of some foreign companies and reduced competition. Thus, with no small probability, the flight of foreign companies from the Russian Federation in the short term could lead not only to “autochthonous” inflation, but also to an increase in tax collections in the Russian Federation from Russian companies. This paradoxical effect was obviously not taken into account or ignored by the owners of parent companies when making decisions.

In general, the Central Bank expects the Russian Federation to come out of recession in the fourth quarter of 2023, to reduce inflation to single digits (and tending to 5% per annum) in two months and the first “recovery” year in a year. It should be noted that the Bank of Russia, even in a relatively optimistic scenario, also sees more long-term consequences of what may now seem like a “light fright”: for example, this is a reduction in gross capital formation by 3–7% in 2023 (in 2021 this effect was reduced by budgetary costs), which will have consequences only after a few years. But in terms of household consumption, the Central Bank does not expect any special shocks, and the regulator as a whole considers a further increase in the population’s enthusiasm for savings and private investment to be very likely.

Dmitry Butrin