Russia Lowered Discount Rate Again
July 25, 2022 (EIRNS)—The Central Bank of the Russian Federation (Bank of Russia) lowered its discount rate from 9.5% to 8% in a July 22 press conference at which it lowered its inflation forecast for 2022 to 12-15% and forecast a smaller, 4-6% economic contraction this year. The bank’s lending rate is now below its level from before the monster sanctions which were to “crush” Russia’s economy, and the ruble remains higher in value than at that time. Bank of Russia Governor Elvira Nabiullina also said that unemployment was at a “record low rate.”
Not paradise, but quite a contrast with today’s reports of accelerating inflation and accelerating collapse in productive activity in the U.S. and European nations!
The Central Bank is clearly trying to combat tendencies to deflation in the Russian economy, under conditions of forced savings by households and businesses. Virtually all imports of any importance are blocked by sanctions and must be substituted, particularly all technology imports from “global NATO” countries. Auto production and sales as of June were nearly stopped, 82% lower than a year earlier, to cite one example of the results. Nabiullina said that business, mortgage and consumer lending by banks were all increasing, but well below their pre-sanctions level. All of the large portion of bank lending which was being done by banks or bank branches abroad, or in dollars and euros, must be replaced by ruble (and, although not mentioned, by renminbi lending).
What matters most, then, is Russian Federation government credit and conversion of Russia’s large current account surpluses into credit. Two Bank of Russia officials discussed the national banking tactic of short-term lending of Russian Federation ruble tax receipts for the periods before they are spent by the government; but this is largely lending to banks aimed at increasing their bank credit. The bank has introduced loan subsidy programs, especially for home-building and mortgages, and effectively reduced the standards imposed on banks regarding business lending—small steps.
Policies for long-term, large-scale lending, especially infrastructural, cannot be decided by the Central Bank. But in one way, it is placing an obstacle to them. The always-ineffective central banking policy of “inflation targeting” is being let back in. Nabiullina said, “For monetary policy, this means that inflation, being impacted by the exchange rate, is also becoming more volatile; and, accordingly, interest rates in the economy might become more volatile as well to support inflation close to the target.”