It’s autumn in the garden, the birds fly away to spend the winter in warmer climates, only the “black swan” is not afraid of the cold and, apparently, again goes to us. “Recession”, depression, “crisis”, “structural transformation” etc. heard more and more from high stands. Let’s try to figure out what awaits us in the near future.
The Central Bank of Russia has published a large-scale unified state monetary policy draft for the period 2023 and 2024 and 2025. I want to immediately note a number of characteristic points. First of all, the Central Bank of Russia tried to take into account all the negative points that the financial community has recorded since 2014. The first is proximity, a form of secrecy in making the most important monetary policy decisions that directly affect the state of financial markets, the life and activities of businesses and ordinary citizens. These are key rate decisions. Now, as promised by the Central Bank of the Russian Federation, the regulator will “immediately and fully” release long-term forecasts for the interest rate.
Moreover, the Central Bank made it clear that, according to the Constitution of the Russian Federation, its main function is to protect and ensure the stability of the ruble. However, according to the report based on Federal Law No. 86 “On the Central Bank of the Russian Federation”, this function is implemented by maintaining price stability, which is “a necessary condition for the transformation and development of the economy” – and here again we turn to inflation targeting, so beloved by our local Central Bank. It turned out that the inflation targeting strategy “has not lost its relevance and is the best choice for monetary policy” even in the current difficult conditions.
Often, talking about the goals of monetary (i.e. monetary) policy, central banks put economic growth, reducing unemployment, and only then – reducing inflation. Economic growth cannot be without inflation. The most competent person in the government, in my opinion, Deputy Prime Minister Andrey Belousov put it very accurately: “The government and the Bank of Russia should put economic growth at the forefront.” It is he who must become a necessity to solve the problems of poverty, demography, quality health, education, roads, ecology, housing, income growth of citizens. This requires a new approach to monetary policy – a shift to targeting the ruble, not inflation. This issue is closely related to the introduction of a new budget rule to regulate the exchange rate of the national currency. The Central Bank wants to allow the ruble to fluctuate freely, and now we all see the consequences: the exchange rate of 59-60 rubles per dollar does not meet the requirements of the economy. According to Belousov, an exchange rate of 70-80 rubles per dollar will be optimal, which will satisfy both exporters and importers.
The report states that “monetary policy creates important conditions for economic restructuring by ensuring price stability”. It is rightly stated that monetary policy alone cannot compensate for the decline in the economy’s potential caused by sanctions. But it can affect the intensity and efficiency of capital use, labor resources and their productivity. It can lead to less cyclical recession or overheating in the economy.
Among the main principles for the implementation of monetary policy, the Central Bank of the Russian Federation still adheres to the following basic principles:
Setting targets (target values) for inflation;
floating exchange rate;
Key rate implementation and communication (I think with the financial community);
Making rate decisions based on macroeconomic forecasts;
information clarity.
If you omit the critical comments, I note the scale of the tasks facing the Bank of Russia. In fact, it turns into a kind of State Planning Committee of the times of the USSR – this is not a metaphor, the Central Bank of the Russian Federation will have to coordinate the activities of many ministries and departments through monetary policy tools: interest rates , bank reserves, transactions in the securities market, regulation of monetary liquidity. A separate task of the Central Bank of the Russian Federation is to maintain the stability of the banking system and the financial market.
Sanctions against Russia grew like a snowball. The first is the arrest of $300 billion in international reserves. Then disconnect SWIFT. Then sanctions against many Russian credit institutions. Cash sale ban. And on top of it – a ban on the purchase of Russian gold, one of the remaining international reserves at our disposal.
The leadership of the Bank of Russia handled the situation quite professionally.
A ban was imposed on the international movement of capital from the country, and the assets of non-residents investing in Russian securities were frozen. The Moscow Stock Exchange was closed to prevent novice investors from making hasty moves and selling their holdings at bargain prices. By the way, this practice was also introduced by the New York Stock Exchange after the terrorist attacks in 2001, but then the situation was completely different. The Central Bank of Russia has taken a number of measures to help borrowers who find themselves in a difficult life situation. Export earnings were sold by exporters. But the main measure of the Central Bank of the Russian Federation was a sharp increase in the key rate to 20%, which made it possible to prevent the onset of the financial crisis. While it is too early to talk about the crisis now, the impact of the sanctions and the departure of many businesses from the country will begin to take effect towards the end of the year.
In this regard, the Central Bank of Russia identified three possible scenarios for the development of the economy. The baseline scenario (most likely) assumes that the country’s economy will shrink by 4-6% this year and 1-4% next year, and we expect a 1% improvement in GDP growth in 2024. Meanwhile, Jerome Powell, Chairman of the US Federal Reserve, said the same thing: stagflation threatens the American economy as well. In my publications, I envisioned the stagflation scenario more than a year ago when I wrote about high inflation rates due to the constraints caused by COVID-19 – disruption of supply chains, disruption of established mechanisms for the delivery of goods, loss of income. a decrease in the flow of tourists and much more. At the same time, there was no impetus for growth in industrialized countries. On the contrary, the sanctions imposed by the European Union against Russia were reflected in him. The energy crisis in Europe turned into an industrial crisis – gas-consuming businesses closed – aluminum, zinc, glass and other plants.
But back to Russia. The second scenario, “Accelerated Adaptation”, assumes that Russia will be able to prevent many external shocks and, by establishing new trade relations, will take action to rapidly transform the economy depending on the current conditions, thus enabling a surplus. Goods and services and some GDP growth are as early as next year, although the Federal Reserve itself has less predicted the likelihood of such a scenario than the first.
The third scenario, called “Global Crisis”, speaks for itself.
The global economy will begin to evolve into regional alliances that will focus more on regional markets than on global ones. However, national economies will begin to lose the possible advantages of the international division of labor and will slide towards isolation and autarky. The Central Bank foresees the collapse of world economic ties and the growth of geopolitical conflicts, trade wars, which will further intensify the regionalization of the world economy. Price shocks in energy markets will cause new bursts of inflation, but the world’s leading central banks have already run out of tools – rates so high that they could easily crush emerging signs of economic growth.
What I cannot agree with is that the Central Bank of the Russian Federation compares a possible crisis (I think most likely) to the 2008-2009 crisis.
This crisis was caused by an underestimation of so-called risks. blind faith in the endless growth of the US real estate market as well as subprime mortgage borrowers. They should have looked at the experience of Japan in 1991, when the real estate market crashed fivefold! Although this is only a narrow strip of the Pacific coast of the land of the Japanese Islands suitable for living, everything else is forests and mountains.
At the same time, American banks were able to securitize loans in debt-backed bonds (not real estate, as was believed) and sell them to foreign investors, to anyone willing to invest in long-term assets – insurance companies, pensions. funds, etc. In addition, investors in such bonds were offered an insurance – credit default swap. Their essence is to cover the investor’s losses if the bond issuer defaults, subject to an annuity payment of a certain percentage of the coverage amount, as in conventional insurance. Thus, the United States was able to transfer its crisis to other countries. and to Russia.
But there were other crises, more severe, in the history of the United States. The most striking example is the Great Depression of 1929-1933. At that time, most ordinary Americans lost their savings playing the stock market. Half of the banks went bankrupt for the same reason. People agreed to work for a bowl of soup.
A serious recession begins in the world – a decrease in production. If the world’s central banks manage to switch between Scylla and Charybdis, it could end in a “soft landing” if it manages to beat inflation and not crush GDP growth. Otherwise (not only our country, but the whole world) a serious, deep and widespread crisis awaits us. And if you choose between the scenarios outlined by Central Bank experts (or rather, HSE’s handwriting), you have to choose between negative and moderately negative. This is somewhere in the middle between the crisis and the base scenario in a rather negative format. I’ve had many crises and my predictions have rarely failed me.
The author expresses his personal opinion, which may not coincide with the editors’ position.
Source: Gazeta
