The Central Bank’s increase in the key interest rate from 13 percent to 15 percent shows the soundness of the regulator’s policy, but the interest rate increase will only have an “indirect” impact on changes in the exchange rate. This is the opinion of the former head of the Central Bank of Russia, Sergei Dubinin, with whom socialbites.ca spoke.
“I think this situation is an indicator of the determination of the Central Bank leadership to continue its policy aimed primarily at controlling the level of inflation. This can only have an indirect impact on the ruble exchange rate. The direct effect was a government decree on foreign exchange earnings, which had to be delivered to the Russian market, that is, to the Moscow Stock Exchange, in certain, apparently scheduled amounts. The details and mechanism of how this will happen have not been fully disclosed, because most companies directly involved in exporting from Russia sell to agencies that already sell for dollars. The company must receive rubles. “It seems that some changes will now be made with this mechanism,” he said.
According to Dubinin, a change in the interest rate will lead to higher lending prices and an increase in deposit interest, which will contribute to economic growth and curb inflation. However, in his opinion, the Central Bank’s decision “will not work”.
“An increase in interest should lead to an increase in the cost of credit and an increase in deposit rates. Taken together, this should theoretically slow new borrowing from corporate and individual borrowers. And so ensure economic growth, but at the same time reduce inflation, because less money should be in the hands of both legal entities and individuals. I believe that this decision will not work, this is an indication of how solid the policy is. This is because most of the money pumped into the country is realized through the budget. The budget is growing and spending is higher than planned during the year the budget is implemented. I think this will continue next year and record spending is already planned there. The budget deficit can only be limited by a decrease in the exchange rate. “Then there will be a larger flow from the same foreign exchange earnings in rubles and more wages,” he explained.
Dubinin noted that the exchange rate will be determined based on budget expenditures rather than the Central Bank decision, as the ministry’s tools are “insufficient to solve the problems” under current conditions.
“Last year, oil and gas revenues in the budget accounted for 46% of the total federal budget revenue. This year, at first, there was a decrease in total oil exports, including gas, but now this situation has improved a little, but I think this share will be quite high. The only truly stable source of revenue is value added tax, and a significant portion of these taxes are import-related. As for imports, again the inflow of this tax is quite stable, but in case of a decrease in revenues from the export operation it is unlikely to be compensated. It’s a pretty difficult situation. Therefore, I think that budget expenditures will determine economic growth, inflation and even the exchange rate more than the Central Bank decision. “The Central Bank’s tools are not enough to solve any problem in the real conditions in which our economy currently operates,” he emphasized.
On Friday, at the meeting of the board of directors of the Central Bank of the Russian Federation accepted The decision to increase the key interest rate by 200 basis points to 15% annually. The Central Bank announced its decision by saying that the current inflation pressure has increased significantly and is above the regulatory authority’s expectations.
At the beginning of October, the dollar and euro reached 101 and 107 rubles, respectively. At 14.30 on Friday (Moscow time) the dollar was worth 92 rubles and the euro was worth 97 rubles.
Previously “socialbites.ca” saidHow does the key rate affect the lives of Russians?