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Alexander Murychev: the economy must reduce the interest rate

Chairman of Coordination Council FBA CS, Vice-President of the RUIE, Chairman of the Council of the Association of Regional Banks of Russia, Alexander Murychev told the portal Bankir.ru on analysis of the problems in the economy.

In the RSPP working group has been established to ensure financial stability and economic growth in Russia, headed by President Alexander Shokhin, RUIE. Its task is to create a shared picture of what is happening, to identify the main problems and identify ways and methods of their solution, to the extent possible under present circumstances. To this end, we sent more than 400 leading Russian companies queries about how to normalize economic situation in the country. Already received dozens of responses from market participants. External factors, a sharp decline in oil prices, sanctions without a doubt affect events in the country. However, a major cause of nervousness Russian business at the moment has been the increase in the key rate of the Central Bank of the Russian Federation up to 17% per annum. Unfortunately, increasing the key rate very poorly helps to stabilize the ruble against the dollar and the Euro and to slow inflation. And almost all who have already responded to our requests, agree that it is urgently necessary, in January, to reduce the key rate. Let it be a gradual decline, even though I think it’s best to get your bet returned to the level of 10-12%. Increasing the key rate has led to an increase in the value of financial resources to 20-30% per annum, depending on the period of funding. To the greatest extent the rise in financial resources has the real economy, which is already experiencing significant difficulties. This overload on the economy. If the key rate will remain at the current level until the end of the first quarter of 2015, as predicted in both the Ministry of economy, this will lead to a wave of bankruptcies of enterprises in all sectors. As you can take out loans at 30% per annum and above, if profitability in Russia is 7-10%? Businesses that operate on the state defense order, this MIC and engineering, one voice asked to stabilize prices for products with export potential (primarily metals), to set appropriate tariffs or quotas. In addition, these enterprises are asked the maximum advance of orders, given the inability to use credit resources. Many proposals were already received RSPP, noted that the executors of the orders need to subsidize current interest rates on Bank loans. Also consider it necessary to provide a mechanism for price changes in state contracts in connection with the price increases, particularly on imported components. Business representatives also asked ban to raise rates on existing credit agreements, as has already made a number of Russian banks. These agreements provide for an increase in the interest rate on the loan in case of an increase in interest rates or sudden changes in the macroeconomic situation. However, I believe that to impose a ban on the change in interest rates on loans to enterprises will be too radical a step. Raise interest rates on loans – this is a forced measure. Banks should calculate their economy, otherwise they will go bankrupt. In order to comply with certain harmony between business and banks, you can set the limit of increasing interest rates on loans at the level of the key rate of the Central Bank. I must say that banks also need government support. Announced that the restructuring of banks allocated trillion rubles. RSPP that access to these tools not only got eight of the largest banks in the country, but other systemically and socially important banks. Criteria such banks need to develop a Central Bank and Ministry of Finance jointly with the banking community and the business community. For example, in the regions there is reference banks, no less socially significant than banks Federal level. In some parts of the leading local banks account for up to half of the total volume of deposits.

Many banks are turning in the RSPP  with a request to support their appeal to the Central Bank to increase liquidity by introducing such anti-crisis instrument, as unsecured auctions. They were introduced in 2009, and they effectively proven. The question is not even that all of them will use them and in the last crisis, not all used – lien auctions helped to reduce psychological stress in the banking market. The possibility to use this tool and get liquidity in case of need already operating on the market soothingly. In the banking sector is radically changing competitive conditions, there is a redistribution of the market. The CB RF should promptly respond to the actions of large banks to provide inflated rates for resources of legal entities and individual entrepreneurs. These circumstances provoke an outflow of funds from other banks. In this situation, a mechanism is needed effectively limit interest rates on deposits of legal entities offered by large banks, in the interests of the normal functioning of the Russian banking system. Be aware that even with the reduction of the key rate reverse the process of rebalancing the economy, improve the situation will be much slower than was worsening. Now between banks and enterprises are contracts based on the current high rates. And to “reverse”, to lower prices, it will take time, it will be very difficult. If the raise happened in a few weeks, then to decline they will be within a year at least, if any, will be reduced.

It seems to me that the consequences of actions taken by the government and Central Bank are not clear enough. In particular, it is unclear how such amounts of financial resources to implement the program of import substitution. Now there are no funds for ongoing operations, where here to expand production and to launch new projects. While rising prices for raw materials. All this, without a doubt, just the beginning of work on the analysis of the growing problems, because I do not think that the situation will improve in the near future.

This post is also available in Russian: Александр Мурычев: экономике необходимо снижение процентной ставки