Zero signal – Newspaper Kommersant No. 235 (7436) dated 12/17/2022

The Board of Directors of the Bank of Russia, having decided not to change the key rate without major discussions, refused to assume until February what would happen to it. The current economic circumstances are quite effective in slowing down inflation, and the only question is whether they will be just as effective early next year, when the 7.5% annual rate may not be enough to counter rising inflationary risks. The situation is paradoxical: what is perceived by society as positive factors will require the Central Bank to make loans more expensive, while a moderate increase in problems is able to reduce inflation, the key rate and facilitate borrowing.

The meeting on the rate of the board of directors of the Central Bank this time contained practically no intrigue. The head of the Bank of Russia, Elvira Nabiullina, when asked by Reuters about what options for action the council discussed, unexpectedly answered: the decision was made by “broad consensus” (that is, only one option was discussed – to leave the rate at the level of 7.5% per annum until February 2023), subject The discussion was only the nature of the signal to the markets, reflected in the board’s comments on the decision. But even in this case, complete neutrality was chosen – the idea to make the statement more stringent, that is, to assume a future tightening of monetary policy (MP), did not work.

As a result, there is simply no formal signal in the message: the Central Bank will make a decision based on the information that will be available on the eve of the February 10 meeting. And, based on the logic of the Central Bank, the solution can be anything.

In fact, of course, it is impossible to consider the description of the logic of the decision taken by the Bank of Russia completely neutral: both the Board of Directors of the Central Bank and Elvira Nabiullina at a press conference made it quite clear that they consider current disinflationary trends to be one-time and short-term, and current and future pro-inflationary factors are presumably relevant on the horizon of several months ahead. Thus, one way or another, it follows from the statements that the regulator is waiting for the moment when the discussion of raising the rate above the current 7.5% would be rational.

The head of the Bank of Russia divided the list of pro-inflationary factors into four groups (their interaction and comparative weights in the Central Bank, at least now, cannot be compared and evaluated). The first is inflationary expectations, both corporate and private: they do not decrease, and in the latter case, the only thing that stops the population from actively increasing consumption (which would lead to an overexpected increase in the consumer price index) is their passion for savings. The second is the shortage of labor: it’s not only about mobilization (noted by the Central Bank of the current and not mentioned, but possible future), but also in the outflow of part of the population outside the Russian Federation — there are not enough people in industry, transport, logistics and construction. The third group – new logistics, sanctions and new suppliers increase the costs of companies, and they may be reflected in price increases. Finally, the fourth group is an increase in the budget deficit in 2022, obviously unexpected for the Central Bank, from 0.9% of GDP to the estimated 2% of GDP: about 1% of GDP is covered by loans from the Ministry of Finance on the market, this money will go into the economy from December-January, and they will contribute their contribution to inflation.

What is considered by the Central Bank as a problem is considered by the population and at least part of the business as a blessing.

The population finally has savings, and the willingness to consume them is limited only to this, wages will grow, the restructuring of industry is going so fast that there is not enough transportation capacity for new imports, and the ability of the Ministry of Finance to borrow trillions without spending the NWF is more of a positive than a problem. At the very least, the fall in wages and the depletion of savings, the lack of domestic demand and tight monetary policy (the head of the Central Bank repeated a very remarkable and explaining formula: soft budget and tight monetary policy work in antiphase) would be a real disaster, although almost instantly would lead to a reduction in inflation to the Central Bank’s target of 4%, or even lower.

The Bank of Russia speaks much sparingly about disinflationary factors and risks. In fact, the answer to the question of how much reduced domestic demand is in the current low inflation (not only in final consumption, but also in the reduction in demand for investment goods within the country), and how much is relatively weak (based on GDP and industrial production figures) reduced supply, to say, especially in the absence of any detailed (and currently closed) foreign trade statistics, few can.

As a result, the Central Bank formally classified only “preservation and strengthening of the savings model” in households as disinflationary factors. Considering that there is no serious failure in either corporate or consumer lending, the answer to the question: “is the current savings boom the emergence of a new household finance model, the panic accumulation of airbags, or is it the population’s vain expectation of the former assortment abundance?” will be the main event of 2023. Considering how many years the Ministry of Finance and the Central Bank have been waiting, bringing as close as possible the moment at which the population, bombarded by financial literacy propaganda, will finally try to save massively, to reports that it is the increased propensity to save that finally reduces domestic demand, preventing the industry from quickly recovering , impossible to relate without irony.

After all, based on the logic of the regulator, only the willingness of the population to save leaves an opportunity for the Central Bank not to raise the key rate.

At the same time, if earlier the development of sanctions pressure on the Russian Federation (undertaken in connection with the military operation of the Russian Federation in Ukraine by almost all the largest economies of the world, except China, India and Brazil) was also considered by the Central Bank as a partly disinflationary factor (through a decrease in domestic demand, at least on expectations and reducing opportunities for government spending), now the new sanctions in the logic of the regulator are rather pro-inflationary factors. In addition to replacing private investments with budget ones (for which, in fact, the budget deficit is expanding), there is another channel – restrictions on the export of oil and gas from Russia reduce the trade surplus and weaken the ruble in the future, devaluation of the national currency is an important pro-inflationary factor.

At the same time, the set of inputs that the Bank of Russia has to analyze is constantly growing: these are mortgage issues, primarily subsidized, and restrictions on foreign trade operations, coupled with devaluation, and geographical features of consumption (it decreased in Moscow and St. in the regions), and the problems of the crypto market, and the accumulated problems of state banks, and even the peculiarities of growing and selling cucumbers and tomatoes in the vast countries, the price dynamics for which are strikingly different from the price dynamics for beets and carrots, but sometimes coincide with the price dynamics for cabbage – and sometimes it doesn’t match. So far, the sum of all terms in terms of the key rate is zero. The probability that in 2023 it will be positive and the rate will rise is apparently greater than the probability of its reduction. But for now, it is worth waiting for February: inflation in the Russian version has become a surprisingly complex and complex phenomenon, and, based on the comments of the Bank of Russia on Friday, December 16, it is difficult to say whether we should seriously rejoice at its decline or even stability. It is all the more pointless to discuss its nominal figures: due to the base effect, under almost any scenario, by March-April 2023, it will formally fall below 4% per annum.

Dmitry Butrin