We write zero, one in mind – Newspaper Kommersant No. 46 (7491) dated 03/18/2023

The key rate of the Bank of Russia remains until May at the current level of 7.5% per annum. A limited increase in the coming months has become more likely, but the circumstances under which the Central Bank will cut the rate do not look impossible – although the unfavorable developments in foreign markets will probably destroy them. The main news of the Bank of Russia from the meeting of the Board of Directors is long-term: the Central Bank is inclined to believe that, following the events of 2022, money in Russia has become generally more expensive, and this may affect all further decisions of the regulator on the rate for months ahead.

The task at the meeting of the Board of Directors of the Bank of Russia on the key rate on March 17 was much easier than the problems that the European Central Bank (ECB) had to solve the day before and those that in a few days will face the Federal Reserve System (FRS). ) USA. It makes no sense to exaggerate them: instability in the US banking system caused by bankruptcies banks SVB and Silvergate, in reality turned out to be quite limited, its spread to the euro jurisdiction, marked in the EU by the problems of Credit Suisse (CS), is more serious – but, at least on Friday, the lack of meaningful news on this issue showed that there is no banking panic and in Europe; Asian markets are still indifferent.

In Russia, which is now fenced off from the world financial markets by two fences at once (capital restrictions from within and sanctions from outside), direct “infection” of the financial system with external problems is almost impossible. Head of the Central Bank Elvira Nabiullina and Deputy Chairman of the Central Bank Alexei Zabotkin at a press conference on the rate recalled that in the latest report of the Central Bank on monetary policy, the stress scenario provided for a significantly more severe financial crisis in the EU and the US than is possible in the worst case scenario now. At the same time, although, as Elvira Nabiullina emphasized, the ECB and the Fed have a problem with the choice between the goals of financial stability and price stability (the head of the ECB, Christine Lagarde, denied this the day before), the Bank of Russia of the “global financial crisis”, according to at least in the form in which it is customary to see him in Russia, he does not expect at all.

Nevertheless, the issue of increasing the key rate was still discussed at the Board of Directors of the Central Bank – it did not reach practical discussion, a consensus developed around saving the bet at the level of 7.5%.

At the same time, the Bank of Russia has already openly stated: with any significant increase in pro-inflationary risks, the rate will be raised at the next meetings.

In the new context, this signal looks trivial: strong instability in the global financial markets is obviously a decrease in the export earnings of the Russian Federation, a weakening of the ruble and an increase in inflation and inflationary expectations. However, even without a hypothetical crisis in global finance (its possible causes have been described by the Central Bank in one way or another for many years – this is the concentration of risks on the balance sheets of European and American banks for many years of zero key rates, this is the situation in Russia: there have been no free or negative real rates for a long time ) there are reasons why the rate of the Bank of Russia may increase in the coming months – and in practice it is unlikely to decrease.

In the description of the Central Bank of the current situation with inflation, it is stated that in the fourth quarter of 2022, the price increase was slightly higher than the regulator would like, in January-February 2023, prices, on the contrary, grew less than expected, but rather due to one-time factors. Inflation right now, in March-April, will formally fall below the level of 4% per annum – the peak of inflation growth occurred precisely in March-April 2022. Immediately after that, inflation will start (due to the same “low base effect”) to increase: the question is how fast.

The Bank of Russia is now worried about the outpacing growth in prices for services and is pleased with the faster-than-expected recovery of economic activity.

True, this has its own problems. “We expect that external demand will increasingly be replaced by domestic demand, not only at the expense of the public sector, but also due to the recovery of consumer activity. At the same time, we will assess how the expansion of demand will correlate with the possibilities of increasing the output of goods and services, ”the head of the Central Bank commented on these problems, making it clear that a repetition of the“ post-COVID ”inflationary effect is possible – a too rapid recovery in demand in 2021, which slightly accelerated inflation . But in general, given the neutrality of monetary conditions, the balance of risks “for” and “against” inflation since February, according to the Central Bank, has not changed – rather “for”, which means that the key rate, which remained unchanged on March 17, has at least no less chances to rise at the April 28 meeting or later.

In the long term, the most important news of the Bank of Russia from the current council is Elvira Nabiullina’s message about the possibility of revising the so-called neutral rate level in the summer of 2023. Now it is 5-6% – this is the total of the conditional neutral rate in the global economy plus long-term country risk for the Russian Federation: with a key rate in a particular jurisdiction close to neutral, monetary policy, at least in theory, is considered neither tight nor soft. In Russia, the chairman of the Central Bank explained, the regulator sees three inputs for determining a new level of the neutral rate: this is the budget policy – in this case, the “level of structural budget deficit”, the value of risk-free rates in the global economy, and finally, the Russian country risk premium.

With such inputs, it is difficult to expect that by July 2023 the Central Bank will be able to refuse to increase the level of the neutral key rate in the Russian Federation to at least 6–7%: if “budget policy” (the current problems of the beginning of the budget year, the Bank of Russia does not consider it a problem at all, seeing in them only intra-annual redistribution of investments) can still be seen as moderately soft in the perspective of two or three years (although, of course, the increase in the “cut-off price” in the new version of the budget rule leaves little room for such estimates), then the country risk for the Russian Federation with the start of its military operation in Ukraine, of course, has grown, because it could not help but grow. As for risk-free rates in the euro area and in the US, they, as a contribution to the Russian neutral rate, may remain the same, and in the event of a significant decrease in business activity there, even slightly decrease. But the amount still looks larger than the “neutral rate” for Russia now.

By itself, the “neutral rate” is a conditional concept behind one “but”: theoretically, this is exactly the level from which the Central Bank counts the “softness” or “toughness” of its monetary policy. With its official change (for example, by 1 p.p. – this change looks moderate), all movements of the real key rate will be somehow not rigid, but tied to this level. The expected upside percentage of the neutral rate band is, in fact, the 2022 macroeconomic price. It looks low – and this is mainly the merit of the policy of the Central Bank and the Ministry of Finance in recent years. But it exists and is not equal to zero.

Dmitry Butrin