About the Annual Report of the Central Bank

2024 Author: Seth Attwood | [email protected]. Last modified: 2023-12-16 15:55

In mid-June, the State Duma discussed the Annual Report of the Bank of Russia, and also considered and approved Elvira Nabiullina's candidacy for the post of Chairman of the Bank of Russia.

On the eve of these events, the Duma held meetings of the Working Group to consider the Annual Report of the Bank of Russia. At these meetings, the responsible employees of the Bank of Russia talked about various aspects of the Central Bank's activities and answered questions from the deputies

From the information reviewed, it can be concluded that the current configuration of the financial management system in Russia is not adequate to the tasks of economic development: the economy is in long-term stagnation, investment activity is extremely low, and the standard of living of the population continues to fall.

Nevertheless, it would be a mistake to consider the Central Bank to be the main culprit in this situation. Analysis shows that the main fault lies with the government, whose actions and, especially, inaction do not allow creating the conditions for starting a growth cycle in our economy. The hopes of the authorities and liberal economists that purely market mechanisms will work are not being justified.

Over the past few years, the central bank has been criticized for being overly tight on monetary policy (MCP), and there are good reasons for this criticism: interest rates are really too high and unaffordable for enterprises in the real sector, and therefore credit is practically unavailable for them now … The Central Bank's annual report gives us some numbers to gauge the scale of the problem. The report says that the weighted average interest rate on ruble-denominated loans to non-financial organizations for a period exceeding one year in December 2016 amounted to 11.7% per annum, which is 2 percentage points lower than at the beginning of the year. Thus, we see that interest rates are declining much more slowly than inflation, which declined by 7.5 percentage points over the year - from 12.9 to 5.4%. That is, n interest rates in real terms (ie after deducting inflation) are growing. Moreover, it should be understood that at rates close to the average value of 11.7%, loans are mainly given to large businesses; at the same time, for about a quarter of all borrowers, especially from small and medium-sized businesses (SMEs), the rates are much higher (such loans, due to their small volumes, have almost no effect on the average rate). It is quite obvious that with such high real interest rates (6% and above) it is very difficult to ensure the profitability of a production project. And unsurprisingly, lending to businesses is shrinking:Thus, the total volume of bank loans to non-financial organizations in 2016, excluding foreign exchange revaluation, decreased by 3.6%, and the volume of loans to small and medium-sized businesses fell even more - by 8.5%.

The indicators presented here (as well as many others), it would seem, leave no doubt about the need to soften monetary policy. However, not all so simple. A mitigation of monetary policy and an increase in the monetization of the economy will be beneficial only if additional credit resources are directed to development, to new production projects, to create jobs, and to increase the output of goods. In this case, business activity will increase and economic growth will accelerate. In this case, inflation may increase somewhat, but not strongly and only in the short term.

This is an optimistic scenario. However, the general configuration of the Russian financial system and, more generally, the system of public administration that has developed in Russia is such that this optimistic scenario does not seem plausible. In the current economic conditions, banks have more profitable investment objects than lending to real production.

First, banks can channel money towards consumer lending. And this will lead mainly to an increase in imports and higher prices. After all, people usually take loans not for the purchase of food, which is now mostly domestic, but for the purchase of non-food products, mainly durable goods, the bulk of which is imported, or, at best, is assembled in Russia from imported components. Therefore, the positive effect of channeling money into consumer lending for the Russian economy will be insignificant, but the negative one will be quite tangible: acceleration of inflation and deterioration of the trade balance.

Second, banks can channel money into speculation in financial markets. As a result, bubbles will inflate there, and the effect on real economic growth will be minimal. This can be seen from the example of the United States: the large-scale quantitative easing carried out there in 2008-2014 had a rather weak effect on economic growth, but the Dow Jones index, as well as other stock indices around the world, grew quite quickly during this period, showing a very noticeable correlation with the volumes of issued dollars.

And also, money thrown into the economy (in any case, a significant part of it) can simply be withdrawn abroad. That is, one of the results of mitigating monetary policy may be an increase in capital outflow.

Therefore, in order to Mitigation of PrEP has been beneficial; it should be carried out only in conjunction with some other measures. Namely, with measures that would motivate, or even compel, banks to channel additional liquidity into the real economy, moreover, to the Russian … Refinancing of the economy should become more targeted, linked to government objectives and development objectives.

Therefore, in my opinion, a more correct solution to the problem of "credit hunger" would not be a general mitigation of monetary policy (for example, in the form of a significant decrease in the key rate), but a wider use of so-called specialized refinancing instruments. We are talking about concessional lending mechanisms in some priority areas where market mechanisms fail … An example of such a specialized refinancing instrument was the so-called Program 6.5 - a program of concessional lending to small and medium-sized businesses. Within the framework of this program, banks received refinancing of loans to SMEs at 6.5% per annum, which made it possible to significantly reduce the interest rate on loans for end borrowers from this segment. Another example: a new specialized mechanism for refinancing loans provided for the implementation of projects selected by the Expert Council of the Industrial Development Fund (the decision to create such a mechanism was made in 2016).

The Bank of Russia is now using other similar specialized instruments, but the total amount of funds allocated for these programs is negligible. So, in 2016, the total volume of loans received under all such programs amounted to only 143 billion rubles. The Bank of Russia deliberately limits the volume of concessional lending to such small amounts in order to "avoid distortions in the functioning of the market." In my opinion, this approach is erroneous, and the volume of such programs should be multiplied.

O However, the application and development of such tools and approaches cannot be carried out by the Central Bank alone: this activity should take place in close cooperation with the government and other federal agencies; it should be linked to the goals of industrial policy, with the goals of long-term development of production. There is none of this now, and the government has been sabotaging any initiative in this direction for many years. Therefore, the main blame for the economic stagnation, in my opinion, lies primarily with the government of D. A. Medvedev, and not with the Central Bank..

In addition, part of the responsibility for such a low activity of the Bank of Russia in stimulating the economy lies with the legislative branch - i.e. at the State Duma. The fact is that stimulating economic growth is not among the main goals of the Central Bank, enshrined in the law on the Central Bank (No. 86-FZ, see article 3). The deputies of the Communist Party faction have repeatedly tried to correct this gap, but almost unsuccessfully. The only thing that has been achieved along this path is the addition of Article 34.1 to the said law in 2013 with the following, very weak wording: to create conditions for balanced and sustainable economic growth. It is clear that the large-scale use of special instruments to support industry, formally speaking, contradicts the current version of the law on the Central Bank: after all, among the side effects of this there may be some acceleration of inflation in the short term. Thus, the inclusion of goals to maintain economic growth in the list of the main goals of the Central Bank in the law on the Central Bank (similar to how it is done in the United States and in the Eurozone) is absolutely necessary if we want the Central Bank to work more actively in this area.

But the inflation targeting regime, which the Bank of Russia switched to in the fall of 2014, is quite consistent with the current version of the law; this regime means that the inflation rate is proclaimed as the only target for monetary regulation. At the same time, the exchange rate of the national currency is not regulated in any way, and interest rates and other parameters of monetary policy are set in such a way as to most effectively ensure the target inflation rate.

In the case of Russia, where (in contrast to Western countries in recent years) relatively high inflation is typical, inflation targeting is a struggle to reduce inflation; the target ("target") set for itself by the Central Bank is consumer inflation of 4%. In solving this problem, the Central Bank has achieved significant success. In 2015, consumer inflation was 12.9%, and already in 2016 it dropped to 5.4% and continues to decline further. In April 2017, consumer inflation on an annualized basis fell to 4.1%, that is, the inflation target was almost achieved. This result was facilitated, in particular, by some temporary factors - a high harvest in 2016 and a noticeable strengthening of the ruble exchange rate, largely caused by the massive arrival of speculative foreign capital, playing on the difference in interest rates between Russia and Western capital markets (for example, the share of non-residents in the bond market federal loan has been growing since the beginning of 2016, reaching 30% to date). Therefore, some acceleration of inflation in the near future is quite possible, but in any case, the tendency for a significant decrease in inflation is quite obvious.

But at what cost is this success achieved? There are two main side effects: the inaccessibility of credit, which we have already mentioned above, and the unpredictable ruble exchange rate with large fluctuations, which complicates the long-term planning of enterprises' activities and, consequently, reduces incentives to develop production and to invest

Another important area of activity of the Central Bank is the regulation and supervision of the banking sector and financial markets, as well as the organization of reorganization of pre-bankrupt banks. The actions of the Central Bank and the DIA in the process of bank reorganization in the past few years have caused harsh criticism due to the glaring inefficiency and huge amounts of spent public funds: so, to date, the state has already spent about 1.2 trillion rubles for these purposes, and the efficiency of using this money causes large doubts - for more details see my article “Billions flow through the holes in capital” (Pravda, no. 14 (2017)). Recently, however, there has been some progress here: the Central Bank has proposed a new mechanism in which the bank resolution will be carried out by the state management company, which will manage state investments in the capital of the banks under resolution, and after the resolution procedure is completed, the bank will be sold on the open market (with the old conducted by private banks with government money). It is hoped that there will be less abuse of this mechanism.

Another option for saving public funds during bank readjustments is the use of the so-called bail-in procedure, when the creditors of the problem bank give money for the readjustment (at least partially) - for more details see my article "Problematic banks: to save or not to save?" (kprf.ru, 18.04.2017). The development of this scheme requires changes in the legislation, and now the necessary changes are under development.

However, in the sphere of regulation and supervision of the banking sector, one - perhaps the most important - question remains unresolved: how to make banks work for the development of the economy. The Central Bank, within the framework of its limited mandate (as mentioned above), monitors the stability of the banking sector and financial markets, but does practically nothing to stimulate their investments in the real sector, in the development of production. A paradoxical situation has developed when the financial (including the banking) sector and the real sector of the economy are largely isolated from each other and live a separate life. The inaction of the Central Bank in relation to this problem is quite consistent with the current version of the law on the Central Bank, and this once again proves how necessary it is to modify this law by including the maintenance of economic growth in the list of the main goals of the Central Bank.

Another important aspect of the Central Bank's activities is combating money laundering and illegal withdrawal of funds abroad. In this area, the Central Bank has achieved certain success in recent years: the volume of so-called dubious transactions in the banking sector is steadily falling. Thus, according to the Central Bank's Annual Report, the volume of illegal withdrawals of funds abroad in 2016 compared to 2015 decreased 2.7 times (from 501 to 183 billion rubles), the volume of cashing in the banking sector decreased by 13% (from 600 to 521 billion rubles). rubles). These are still huge volumes of illegal transactions, and the problem is still far from being resolved, but a positive trend is evident. Another indirect confirmation of this trend is the growth of the "interest for cash withdrawal", i.e. commissions for illegal cashing out of funds on the black market. So, according to the Deputy Chairman of the Central Bank Dmitry Skobelkin, the percentage for cashing in 2016 reached 12%, while in 2011-2012 it was only 1% (the figure of 1% raises some doubts, but the fact that in past years the percentage for cashing was significantly lower than 10-12%, this is a fact).

Among the positive results of the Central Bank's activities in 2017 is the creation of a state reinsurance company, which has long been proposed by the Communist Party faction. This measure will allow, in particular, to reduce the outflow of funds abroad in the form of reinsurance premiums. We also note the development of mechanisms for the so-called proportional regulation of the banking sector (when small banks with limited functionality have less stringent requirements for sustainability standards and submit "lightweight" reporting).

So, to summarize what has been said: in my opinion, the activities of the Bank of Russia have recently become more effective, although there are still many unresolved problems in its activities. but until the economic course in Russia changes radically and the government begins to effectively fulfill its direct responsibilities, the Russian economy will stagnate, and people's living standards will fall.