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Wednesday, February 14, 2018

The Central Bank will cut the key rate by half a percentage point

This issue is on the agenda of the meeting of the Board of Directors of the Central Bank, which will be held June 10. The last time the Bank of Russia reduced the key rate on 3 Aug 2015. Then, the Central Bank cut the rate by 0.5%. Now there is reason to believe that the rate will be reduced by 0.5-1%. Moreover, the reasons are not economic but political. Experts say that at the head of the Central Bank Elvira Nabiullina have a lot of pressure as the banking community and industry. She will be forced to make this decision. But the reduction in the rate situation in our economy will not change. Both banks and businesses, remaining on the market, have accumulated sufficient financial reserves. But they do not use them, because they are afraid of the risk that these funds will not bring a decent return.

photo: Gennady Cherkasov

On reduction of the key rate of say a few months. In late may, the ex-Minister of economic development Herman Gref, has argued that this measure will become a serious impetus for the growth of the credit market: lending will become more accessible to the public. Moreover, the rise of not only the mortgage, but also consumer loans. This will benefit the economy, including small and medium businesses.

Indeed, market hopes for a rate cut. According to the April statistics of the Central Bank, the cost of borrowing for a period of up to one year fell by 2.5%. Loans for longer periods of time has fallen in price on 0,4%. According to experts, this trend will continue, if the mega-regulator will lower the benchmark interest rate.

As told “MK” financial Ombudsman Pavel Medvedev, in fact, the Central Bank may meet banks and businesses and to reduce the key rate by 0.5-1%. “However, it would be a decision caused by the strongest pressure exerted on Elvira Nabiullina,” — says the expert.

The same is the opinion of the Director of the Banking Institute HSE Vasily Solodkov. “It will be a completely purely symbolic solution. To some revolution in the financial and the industrial market that will not”, — the expert said in an interview with “MK”.

It is impossible not to agree. Affordable loans usually increase the volume of funds placed on the market. This leads to the fall of the ruble and inflation. For this reason, there arises a doubt as it is logical to lower the rate to change the current precarious position. In early June, inflation fell to zero percent. To keep the annual rate of consumer price growth at 6.5% as we promised to the government, you need to try to maintain the current trend.

In addition, there is a need to change rates now. The fact that domestic banks and businesses to date have accumulated on their accounts 1 trillion of funds that are not involved in the “economic process”. They are in no hurry to put the money into the business, because they are afraid of losing them. Banks are afraid of increasing no credit check loans, which will be cheaper, if the Central Bank decides to lower rates. Businesses, by and large, generally had a complex, that their new investment will be wasted.

So that, as Paul says Medvedev, “the money in Russia is, but to find a use for them yet no one is going. Export-oriented companies it is not profitable, as they will lose profits with the growth of the ruble. Companies focused on the domestic market, afraid to lose everything accumulated. If the Central Bank will lower rates, it will not affect the Russian economy. But perhaps in this case, Elvira Nabiullina will be able to continue its cautious policy and will be criticized much less,” — said the expert.

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