Kremlin planning ‘serious injection of liquidity’

Russia’s government will work together with the Central Bank to avoid damaging macroeconomic stability

Kremlin planning ‘serious injection of liquidity’
Photo: kremlin.ru

Moscow is working out a detailed plan for raising state spendings to spur economic growth. At a recent government meeting, officials promised to closely cooperate with the Central Bank to secure Russia’s macroeconomic stability, as a sharp spending increase will inevitably affect inflation and other economic indicators.

Russia’s new first deputy prime minister vowed to oversee a “serious injection of liquidity” into the economy, reports Bloomberg. In his first speech since a government overhaul, Andrey Belousov stated that increased state spending would add 1% to economic expansion this year and 1,7% in 2021. According to the official, 300 billion rubles a year will be spent from the National Wealth Fund.

However, Belousov pointed out that the government would work closely with the Central Bank to avoid a jump in inflation. “We need to conduct delicate and intricate work together with the Central Bank to avoid damaging macroeconomic stability and spurring inflation,” he said. According to the Bank of Russia, these discussions won’t affect its independence. At the same time, sharing views will allow both the government and regulator to make better decisions, reads the bank’s statement. On Friday, the Central Bank cut the key rate from 6,25% to 6% and announced that it expected annual inflation to total 3,5–4% in 2020 and remain close to 4% further on.

In 2018, Andrey Belousov urged President Putin to significantly increase borrowing to fund a large-scale infrastructure plan known as National Projects. Photo: kremlin.ru

Belousov, a former Kremlin adviser appointed as first deputy prime minister last month, was one of the senior officials who lobbied Putin in 2018 to significantly increase borrowing to fund a large-scale infrastructure plan known as National Projects. Russia’s new Prime Minister Mikhail Mishustin vowed to speed up spending on the $400-billion four-year plan.

The Kremlin aims to change course from tight fiscal and monetary policies to intensive spendings in order to boost living standards during President Vladimir Putin’s final term in office. In January, Putin announced proposals to spend about $65 billion until 2024 on new benefits for the poor and families. At the government’s meeting on Wednesday, the president stated that Russia must invest in itself without more delay. “We may not get another chance, we may not be able to accumulate this amount of money that we’ve got for our national development goals again in the coming years, or maybe decades,” he said. Extra spending in 2020 may reach 2,1 trillion rubles ($34 billion), or 1,3% of GDP, according to calculations by ING Groep NV.

By Anna Litvina