The head of the Central Bank, Elvira Nabiullina, announced at a joint meeting of the State Duma committees that the restructuring of the economy was accelerated, taking into account the “Main Guidelines of the Unified State Monetary Policy for the period 2023 and 2024-2025”.
“In recent months, the balance of situation and risk for the global economy has shifted towards a more severe if not full-scale global crisis. “This is not a reason to just wait for events to develop, to wait for the weather, as they say, by the sea,” he said.
According to Nabiullina, structural adjustment looks different for different industries and includes “searching for new foreign markets, alternative foreign suppliers of raw materials, components, equipment, redirecting to the domestic market, increasing the degree of processing, changing the products themselves”.
The head of the Central Bank noted that this is a “very complex and multifaceted process” that will take more than a year.
The Central Bank, taking into account the development of the global crisis, prepared a report on this situation by experts of regulatory institutions.
“In this scenario, interest rate hikes by leading central banks will not be enough to slow the inflation rate in time. Higher, less predictable interest rates will put pressure on the growth of the global economy, reduce the value of assets and increase financial stability risks. According to this scenario, geopolitical tensions will increase, fragmentation will occur in the global economy, sanctions against Russia will intensify, which will become another factor in the worsening of the situation in the global economy.
According to him, the result of these processes may be a crisis of 2008-2009 scale. This is an unfavorable scenario for Russia’s development and entry into a new structural model of the Russian economy. “Our path will be more difficult,” warned Nabiullina.
However, he noted that in the base scenario of the Central Bank, although different countries took measures to reduce inflation, which would cause a slowdown in global economic growth, the possibility of a global recession was not ensured.
Sanctions and shock
Nabiullina also noted that the Russian banking system has withstood this year’s shocks well, maintaining its lending potential and margin of safety.
“The banking system, although the first and strongest blow, has withstood the shocks of this year well, retaining its lending potential, a margin of safety,” he said.
However, he noted that the impact of the sanctions on the Russian economy should not be underestimated.
“The sanctions are very strong and their impact on both Russia and the global economy should not be underestimated, their impact will be impossible to dodge.”
Nabiullina emphasized that some processes, for example, the state of the global economy, which determine the demand for Russian exports, cannot be affected. He said international sanctions have led to the destruction of Russia’s geography of imports and exports, and foreign economic relations that now need to be restored. According to him, the situation does not improve, on the contrary, it becomes more difficult because the pressure for sanctions increases due to the damage in third countries.
Talking about a possible correction of the ruble rate against foreign currencies, he noted that the artificial weakening of the ruble rate in the interests of exporters and to fill the budget more will lead to the conversion of the Russian economy into the currency. The Central Bank believes that the floating interest rate policy is the most effective method.
“There are proposals to artificially weaken the exchange rate to benefit exporters and budgets. But if such a policy is implemented, and both citizens and businesses know that the government is deliberately weakening the exchange rate, it can only weaken it. Do you think they will keep the money in the national currency, in rubles? There will be a monetization in the economy, in turn, and this will affect all monetary conditions,” he said.
key ratio
He also said that the Central Bank expects to return to a neutral interest rate of 5-6 percent in 2025.
“We generally estimate a neutral rate of 5-6% in all scenarios, just as neutral. Let me remind you that the neutral rate is the rate that, in our opinion, does not lead to an increase or decrease in inflation when the economy is at its potential, as they say,” he explained.
According to the forecast of the Central Bank of Russia, inflation will be 12-13% at the end of this year, will fall to 5-7% by the end of next year and will return to the target level of 4% in the future.