“Monetary instruments do not work”
Chairman of Coordination Council FBA CS Murychev Alexander gave an interview to the newspaper “Izvestia”. Increasing the key rate is a monetary instrument that is able to contain inflation and to strengthen the ruble. But monetary instruments in Russia do not work. Increasing the key rate to 17% per annum inflated interest rates on loans to large businesses with pre-14-16% per annum up to 20-30% and even more. This effectively paralyzed the work of industrial enterprises, plus banks have tightened requirements for borrowers, ceasing to lend to them under current resources. Suffered almost all of the real sector of the economy. Suffer the company focused on import substitution, in the current situation there is no funding for the implementation of this program. Under attack are enterprises of the agroindustrial complex, the defence industry. The company that runs the government openly say that in terms of the cost of credit resources they need help States the maximum advance of the budget subsidizing of interest rates on Bank loans (they can take the maximum at 15% per annum at the current 30%). The scope of the programs of state orders for 2015 – hundreds of billions of rubles. The longer you will keep the current key rate, the greater the losses will be borne by the company. A wave of bankruptcies in the case of the current conditions among companies is inevitable, now they suffer no less than the small and medium business.
Problems companies add imposed by the US and EU sanctions, the decline in oil prices. Prime Minister Dmitry Medvedev instructed the government to the end of the first quarter of 2015 to elaborate proposals for subsidizing credit for companies that implement priority programs. But this issue should not be settled for months, and for a few days. If the bankruptcy of large and medium business, which brings 70-75% of GDP, the budget will suffer a significant loss.
Optimism does not add the forecasts of the International monetary Fund and the Central Bank: the first predicts a three percent decline in the Russian economy in 2015, stress the second scenario assumes that this rate will be 4.5 %. Not to say that Russia’s economy will collapse. But the fact that we are in a difficult situation, obviously.
The Central Bank need as quickly as possible to reduce the key rate, 30 January 2015 on the Board of Directors of the Central Bank up to 12% per annum. The task of supporting the economy rests with the government, but without decision-making on key rate to perform this mission impossible. The Central Bank likely will decline: the regulator has fallen criticism from all sides including disgruntled business and banks, and legislators.
Over the allocation of banks 1 trillion rubles to support the real sector. We wrote a letter to Deputy Prime Minister Igor Shuvalov, which indicated that the number of recipients of this money should not be limited to players with a capital of 25 billion rubles. This is mainly Moscow players: the state-owned banks and large private banks, and so strong the support of their shareholders. We propose to include in the scope of banks, which should be given government assistance, regional banks with assets of 10 billion rubles. This support socially important banks, and they have about 70, they lend to thousands of businesses in 29 regions of Russia. According to our estimates, initially they need to provide at least 100 billion rubles. Yet it is difficult to assess what has already suffered the loss of big business, but it is quite remarkable that all companies engaged in optimization. In the last crisis of 2008-2010 left the market, dozens of companies (the decline of some amounted to more than 20%). The government should consider universal benefits for invest active companies, including invest benefit. And, of course, be revised in relation to the current situation, the pricing system during the execution of the state order and to minimize the growth of tariffs of natural monopolies.
This post is also available in Russian: «Монетарные инструменты не работают»