Elvira Nabiullina to make credit less expensive or accelerate inflation?

Third call

In early summer, the Central Bank of Russia (CBR) began to gradually reduce the key rate: on June 17 — to 7,5% per annum, on 26 July — to 7,25%, and finally, on 6 September, it fell to the “pre-Crimean” level and is amounted to 7% per annum.

Lowering the regulator's key rate is considered an easing measure of monetary policy: the Central Bank makes money cheaper for commercial banks to facilitate their access to liquidity. Therefore, central banks of different countries usually take such measures to “boost” financial flows and increase the activity of the economy.

The key rate of the regulator is one of the tools of emergency response to monetary shocks. For example, in December 2014, when the depreciation of oil on global markets sharply collapsed the ruble, the Central Bank was forced to raise the rate from 10% to 17%. In calm conditions, the rate changes incrementally, usually — in increments of 25 basis points.

Andrey Movchan: “Money, like blood, flows through the economy, and if there is hypotension because of their lack, it is necessary to reduce the interest rate”

Andrey Movchan, the director of the economic programme at the Carnegie Moscow Centre, says that the Central Bank rate does not create reality, but reflects it. The regulator reduces the rate not because it wants to change something but because the situation in the economy itself has changed and this requires adequate action from the Central Bank.

And the situation is the following: inflation is quite low — this is happening because the economy has slowed down and the market demand is low. In this situation, commercial banks need cheap money that they will invest. Therefore, the regulator is engaged in a systematic lowering of the interest rate: it allows banks to breathe easier.

Movchan believes that, theoretically, the rate of commercial banks may fall because the margin is preserved, but the resources of the Central Bank are getting cheaper for them. This means that there is room for manoeuvring to further reduce interest rates on loans. According to the economist, the Central Bank is adequately responding to market events.

Andrey Movchan aptly compares the monetary system of the country with the human circulatory system:

Maksim Osadchy: “The reduction in the cost of Central Bank’s money given to banks is translated into a reduction in mortgage rates”

Maksim Osadchy, the head of the analytical department at BKF Bank, is sure that bank loans are going to become cheaper for us. But he warns: if the regulator is too active in easing the monetary policy, it can trigger a surge in inflation.

Is the next reduction of the key rate of the Central Bank going to affect the cost of consumer and mortgage loans in your opinion?

Certainly, the reduction of the key rate of the Central Bank contributes to the reduction of rates on both loans and deposits in the Russian market as a whole. This will also have an impact on the conditions for mortgage loans: the cheapening of the Central Bank's money given to banks is translated into a reduction in mortgage rates.

Do you expect that the rate of commercial banks on deposits will also decrease?

The decrease in interest rates will definitely affect the deposits. The clear trend is observed in the maximum rate on deposits in the top 10. In April, it was 7,5%, and by the third decade of August, it fell to 6,8%. That is, we see clearly “bearish” dynamics of rates, and the downward trend is quite stable.

Will the mortgage market grow due to their cheapening, in your opinion?

In theory, the demand for a mortgage should be the higher the cheaper its cost. But in practice, this does not happen. In July 2019, Russia issued mortgage loans for 222 billion rubles, while the year before, in July 2018 — 246 billion. That is, we are observing a decrease in issuance. I think this is mainly due to that the real disposable income of the population is declining: people still do not have money for housing.

Nevertheless, despite the fall in issuance, total loan debt is growing: as of August 1, it was 7 trillion, while a year ago it was 5,8 trillion. Annual growth exceeds 20%. At the same time, the loan delinquency is less than 1%: a total of 64,6 billion rubles with a total portfolio of 7 trillion.

What other consequences of the key rate reduction of the regulator can we feel?

Despite the fact that the Central Bank systematically reduces the key rate, the economy is still reacting poorly. The easing of the monetary policy is not yet able to create the momentum that would spur economic growth.

At the same time, the reduction of the key rate may lead to a resumption of inflation: now it is being at the level of 4,3%, and this is quite acceptable for our economy. But in the conditions of sanctions, the flywheel of the economy is not spinning, and therefore the money supply, which is thrown into the market due to the easing of the monetary policy, can provoke growth in inflation.