The strengthening of the Russian national currency, contrary to the objective factors, has become a phenomenon to which the economy slowly adapts. It would seem that you need to enjoy a strong ruble, but the authorities, on the contrary, try to relax. But it turns out that financial institutions are not capable of handling the course, which is released by the Central Bank to float freely. Where in the end will sail, “wooden”, which will lead the country’s policy of inflation targeting, and why the economy is growing, and the population is impoverished, explained in an interview with “MK” ex-Chairman of Bank of Russia, head of the Department of stock markets and financial engineering of Ranhigs, Professor Konstantin Korischenko.
photo: Natalia Muslinkina
— Nearing the end of the year is traditionally the time when the currency markets is beginning to storm. For example, three years ago, in December, the ruble reached 80 to the dollar and the Euro, and all exceeded 100. But then a crisis, and today the economy seems to be recovering, although many analysts predict the imminent and inevitable collapse of the national currency. But what do you expect from the ruble you?
Before forecasting, it is necessary to consider the current situation as a whole. In early autumn in Russia there was a shortage of dollar liquidity in the banking system was a serious surplus of virtually any — about $ 1 trillion which continues to grow and can reach a predicted $ 2 trillion virtually any. With this combination of two factors — the lack of dollars and the excess of virtually any, the ruble, in theory, should fall, and he is strengthened. Currency speculation in any country, including Russia, are due to the large participant: the population or the government, as it was in 1990-ies. But if all speculators want to play in the decline of the ruble, it will not work; they are to win, we need someone who would take the opposite position. This party could be a Central Bank, but since it let the ruble float freely and is not engaged in interventions in the foreign exchange market, it does not affect the exchange rate. It can only provide foreign currency liquidity to those whom it is not enough, through currency REPO (transaction of purchase of securities with agreement to sell them back after a certain period at a predetermined price in the agreement. — “MK”). And banks with excess virtually any offer to invest in securities of Bank of Russia or to put on Deposit, thereby protecting the ruble against shocks. By continuing such a policy notable trends in the “wood” in the foreseeable future will not.
In monetary policy, the Central Bank also, apparently, in the near future changes are foreseen. At the last meeting of the leadership of the regulator has decided to lower the key rate by 0.25%, same as last time. Does this mean that entrenched the trend toward lowering rates, and what steps should we expect from the Central Bank on the last in this year meeting, which will take place in December?
— The Central Bank as if following the precepts of Lenin, who said: yesterday was early, tomorrow will be too late. And with the rate of 0.5% — much, 0% is not enough, so there will be 0,25%, apparently thinking of the Central Bank. But seriously, the rate will definitely be reduced. We can confidently say that it will slowly decline, but to predict to what level — is difficult. In fact, the rate of 6-6,5% is quite comfortable for the regulator, and, if he had reduced her to this level at the last meeting or the next, nothing bad would have happened. But the Central Bank would have exhausted its ability on several upcoming meetings of symbolic steps to reduce the rate, confirming that risks the return of inflation remain. Predictability, it seems, is a top priority of the Central Bank. I do not think that in 2018, something will change dramatically.
— That is, the Central Bank keeps the space?
Yes, that’s right. On the surface, we see a policy of slow reduction in the key rate, but in fact it is the retention of high real interest rates. The economy is a Taylor rule, it determines the compliance of the nominal interest rate change of some economic indicators, including inflation. With inflation at 2.7%, the key rate should be 4.5–5%, i.e. much less than the current 8.25 percent. The policy of the Central Bank can be viewed from different angles, and it may be that with all the recent cuts, the regulator is still keeping the rate at a high level.
— What, in your opinion, should focus its action, the Central Bank of the Russian Federation and how long the ruble will remain in the float?
In recent statements, Central Bank and Ministry of Finance introduced a new motif, and it sounds like “the target for the real effective exchange rate”. It is considered that the crisis in Russia was due to the fall in oil prices. But the price of oil is the reason, and the reason is the excessive strengthening of the ruble in real terms or this notorious real effective exchange rate. For example, in 1995-1998, when introduced the currency corridor, with a huge rate of inflation was recorded at 6 virtually any. Something similar was developed in 2008, and 2014. The real effective ruble exchange rate significantly increased, and with it fell the effectiveness of our foreign trade. Since the cycles of crises are closely linked with the cycles of real appreciation of the effective exchange rate of the ruble, the stability of this course and have a strategy for avoiding recurrence of the crisis. Simplistically, such a policy can be described as the synchronization indicators of exchange rate and inflation. Creating a model of crisis management of the economy is intellectually the right problem, but this model is not challenging, it simply maintains the status quo and does not carry the ambition for high growth, but eliminates the risk of falling into crisis.
Another question — will we be able to achieve the stability of the real effective exchange rate? With inflation, everything is simple: the Central Bank “clamps” the money keeps a high rate, and the government gives monopolies to raise tariffs in such circumstances, inflation will be low. This policy works when you are struggling with the economy proinflationary, but when you brought the inflation rate to an adequate level, it will exhaust itself. Rate of 8.25% constantly will provoke the inflow of capital, and he will continue to put pressure on the ruble strengthening. It turns out that the policy of inflation targeting, and the desire to stabilize the real effective exchange rate are, if not in contradiction, it is a big question about the possibility of joint existence. Inflation targeting and restrained fiscal policy is good, but to a certain extent, not to high growth rates. It is necessary to “overdo” with the lowering of inflation and the risk of deflation, which has already been talked.
The Russian population receiving income and making purchases in virtually any, low inflation and a strong currency. On the other hand, the government in order to reduce the budget deficit, benefit from a weak ruble. Can’t the authorities take any artificial steps to weaken the ruble against the dollar and Euro and play thereby against their populations in order of economic growth or financial interests of the state?
— I have not the impression that the government is taking action to achieve high growth. It is employed to ensure exchange rate stability, predictability of the economy, a balanced budget, filling the reserves and the banking system with money, to improve the state of the Armed forces, and many others. Budget, monetary and exchange rate policies are tools to achieve the goal, and the goal is not economic growth, and stabilization. Today’s combination of high real interest rates, declining budget deficit, the structure of the economy, two-thirds of her state, does not carry the objective prerequisites for the growth of GDP. Then the question arises: what is the basis for economic growth? It’s either proper planning at the level of state programs, the state planning Commission, for example, or market competition in the presence of a large number of economic agents. We’re stuck somewhere between the first and second options. We do not reject the market model, even in the Soviet Union was a cooperative, collective farm markets and the NEP, which gave an impetus to the economy through free market competition. On the other hand, we increase the state involvement in the banking sector and the real sector and ignored market mechanisms that are needed to create the conditions for growth. Bring a metaphor to understand: a good football tournament is impossible without modern stadiums, good goals, high-quality turf and top players whose teams compete with each other, showing good football with a sports affair. But when you have the stadium, the pitch and the ball, but the team and players you recruited on the principle of the rail industry, and the agricultural, the good football will not work, and people will come to play for fun without much interest to compete with each other. Similarly, state corporations are not a market goal, they are not profit-oriented. Their main task is to follow the instructions above and save your place. And only by creating market conditions for a functioning economy, we get players who through competition with each other would give high growth rates.
— As a correlate of economic growth and welfare depends on whether one from the other?
— We all have some idea what GDP: include the result of export-import activities, spending and government spending, private investment. For example, in the United States two-thirds or more of GDP growth give the expenditure. In Russia, about half of the GDP gives net exports. Previously, the Russian model was similar to Chinese, but a few years ago, China changed its economic growth model from export orientation to domestic consumption. That is, the question is not only how much you need to grow, but at the expense of what you need to grow. Sustainable growth is improvement of welfare of the population, while resolving social problems with the growth of the economy. And the economy, which is export-oriented, GDP can grow, but the population can not win.
— Not so long ago the Ministry of Finance issued long-term forecast, which States that oil prices will fall every year for 1-2 dollars per barrel. For Russia, which lives on petrodollars, such a prospect is fraught with problems. However, today you often hear the claim that oil prices, our country depends less than before. Is it really so? What are we going to replenish the budget in the next 5-10 years and later?
— Changes in the forecasted oil prices in the budget structure of the economy cannot be changed. The budget hits the price of oil in dollars, and the price of oil, denominated in virtually any, but between the first and second is another element — the ruble, and it is in the long-term forecast laid notoriously low. Why do we have to put in the forecast of cheap oil and a weak ruble? The answer is simple: for profit. Forecasted dollar price is used to calculate taxes on the export sector, the lower her bet, the more revenue the industry in dollar terms will be obtained. Plus there is other benefits, including political: with projected low rate of the ruble, the authorities can take credit for the fact that the currency was stronger.
— Not so long ago there was a rumor that the Finance Ministry has requested emergency powers to intervene in the foreign exchange market, in particular for the issuance of permits to purchase foreign currency. Similar measures were used in the 1990-ies, when the country was a serious shortage of currency. What the financial authorities are preparing now?
— The fact that Russian legislation lacks a working rule governing the repatriation of capital in the country — in simple terms, the recovery of assets located abroad. Therefore, the Ministry of Finance under the pretext of liberalization offers to enter a different rule which will give the Central Bank the right operational restrictions stipulated by the law on currency regulation. Previously proposed such measures, but the authority, aimed at curbing the capital inflow to avoid, as a consequence, its outflow. Now the motivation of the Ministry of Finance I can’t pinpoint, but perhaps there is fear of capital flight, further lowering the Central Bank rate or due to the introduction of new sanctions. Under a floating exchange rate when there is no opportunity for intervention of the Central Bank, sound currency regulation can be a useful tool to fight against various shocks. The only problem is that the excess foreign exchange regulation can be worse than his absence.
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