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- Not expected, but guessed: what's behind the Central Bank's decision not to raise the key rate
Not expected, but guessed: what's behind the Central Bank's decision not to raise the key rate
Before the New Year, sometimes miracles happen not only in fairy tales, but also in life. Last Friday, for example, contrary to all forecasts and expectations, the Central Bank did not raise the key rate, but kept it at 21%. Anna Kaledina, a columnist of Izvestia, discussed what was behind this decision, whether it was political, what reaction it caused and whether the pause can be considered a signal to soften the monetary policy of the Central Bank.
Why the Central Bank kept the rate
The Central Bank's decision on Friday caused a stir among economists and analysts, who competed in forecasts as to what level the Central Bank would raise the key rate. There was no doubt about exactly this outcome, the rates, pardon the tautology, were taken on the value of the percentage - 23-24-25? After 1:30 p.m. on December 20, many acquaintances lamented that they had to rework their prepared comments on the fly.
To begin with, they justified that the Central Bank's decision was political. By the way, such a development was predicted by some political observers, linking the direction of the regulator's steps to the large-scale criticism of it, the president's direct line and the looming New Year holidays. If there were a totalizator in the country, it would be these citizens who would get the maximum winnings from their bets.
I should note at once that at the direct line the president did not criticize, as it seemed to many people. He noted that there are subjective reasons, there are also "our shortcomings". Then he cited the words of the Central Bank's critics that it was too late to start using instruments that are not related to the key rate. He went on to say that on the whole everyone is working efficiently and expressed hope that the problem of rising prices will be dealt with.
Much more telling, in my opinion, was the head of state's remark about his conversation with the Central Bank head during the preparation of the direct line, in which he slipped in "Elvira told me...". Many people paid attention, by the way. The mood of the Central Bank head at the press conference on the rate also indirectly indicated that everything was going well and in its own way. When asked whether the upcoming decision had been discussed with Vladimir Putin, the Central Bank head, smiling broadly, replied: "The President has said everything.
There was no tension, no sense of despondency or depression - rather, a cheerful state of mind. However, some embarrassment was still felt when she listed the arguments in favor of keeping the rate. It was clearly not easy to do so after the tough and consistent signals about the possibility of a rate hike after the October meeting. And the backdrop for the pause was not very appropriate - accelerating inflation and inflation expectations. The argument, in my opinion, was not very convincing - the regulator's measures, including macroprudential ones, have led to an increase in the spread between the key rate and banks' lending rates. Simply put, organizations are now lending money as if the key rate has already risen to 24%, or even more.
Chairman of the Central Bank of the Russian Federation Elvira Nabiullina
I can quite admit that when discussing the forthcoming decision of the Central Bank, the President could ask Elvira Nabiullina whether it is possible to lower the key rate, or at least put it on pause to see how inflation will react to the previous actions. I will say more, if I were the head of the Central Bank, I would even do it on purpose. It is quite obvious that inflation risks increase before the New Year - this is the period when large budget expenditures fall, people receive "thirteenth" salaries and bonuses, buy gifts. And the long weekend promotes spending, traveling - now mostly around the country - etc. It would be interesting to see whether prices will accelerate after the rate is maintained.
Can we expect the Central Bank to soften its policy?
The next meeting of the Central Bank's board of directors will be held in almost two months, but no one is preventing the regulator from announcing an unscheduled decision. And in this regard, it will be very difficult for critics to make arguments against the regulator's tough policy. They did what you wanted, and this is what happened. In addition, during the press conference, the head of the Central Bank mentioned several times that macroprudential regulation also has an effect on the cooling of the credit market.
What's next? The Central Bank itself has softened the signal on the rate - the probability of its increase in February is "slightly lower". However, economists and analysts, who justified their unfulfilled forecasts, are sure that in February we will see another step up, and it is not excluded that it will be up to 23-25%. Unofficially, they share their observations that Elvira Nabiullina still has carte blanche to pursue the policy she deems necessary.
Even the Bloomberg agency, which after the direct line "opened America" that the Central Bank head is under attack by officials, bankers and businessmen for the fact that her harsh JCP is destroying the economy, admitted that the president "remains confident that Nabiullina is making the necessary decisions" to support the economy.
How businessmen, lawmakers, and bankers reacted to the rate stay
The reaction of Oleg Deripaska, almost the main public critic of the Central Bank, was unexpectedly moderate and balanced. In his post in Telegram, although he did not forget to once again jab at the Central Bank, he called for collegial action by all branches of government and business to promote supply-side economics. So that the fight against inflation was not through rate hikes and flat and dubious decisions "like hitting tomato prices." By the way, the head of the Central Bank at the press conference on Friday emphasized that the regulator on its part affects demand, and it is necessary to increase supply, including through labor productivity.
In other words, we can see the first signs that the fight against inflation may become a goal not only for the Central Bank, but also for officials, business, etc. And this is quite right. And this is quite right. Because business, fiercely criticizing the Central Bank, somehow forgets that it became a hostage of high interest rates because it failed to calculate the risks. When the regulator started to raise the key rate, many entrepreneurs were sure that it would not last long (as in 2022), so they took loans at floating rates in the hope that the key rate would soon go down and they would outsmart everyone. In reality, it turned out the other way around. In general, they bet on zero, and the black fell out.
Consistency was shown by deputy Sergei Mironov, who has recently tried to raise the public to fight against the Central Bank. He noted in his Telegram channel that "tough and reasoned criticism worked. The Central Bank did not raise the key rate, and this is a kind of New Year's gift to our economy." "But this is just the beginning. Now the rate has to be lowered. And use other tools to fight inflation. Including limiting, freezing the tariffs of natural monopolies. I said the other day that the situation around the policy of the Central Bank and its leadership is close to a denouement. Further will be even more interesting", - emphasized the head of the faction "Fair Russia".
Especially bankers did not speak about the preservation of the key and bankers. Recently, VTB First Deputy Chairman Dmitry Pyanov in his letter to Snow Maiden and Santa Claus from "Dima's boy" asked whether the country could pay too high a price in the form of recession and unemployment because of the Central Bank's policy. Now jokes and quips from credit organizations did not follow. Bankers found themselves in the most, how to put it mildly, awkward position. Being confident that the Central Bank will raise the key rate on Friday, they increased the promised yield in advance (some of the most desperate almost to 30%). How to provide such generosity to depositors when lending opportunities are decreasing? That is another question.
On Friday, the head of the Central Bank also voiced her wishes to Santa Claus - positive and stable economic growth rates, slowdown in price growth, in general, increase in people's welfare. And she added that "in addition to requests to Santa Claus, we have tools in our hands to achieve this". New Year is New Year, but no one canceled verbal interventions.
