House of cards: wait for bubbles and a new crisis


Карточный домик: Россию ждут пузыри и новый кризис

The Central Bank has reduced inflation to levels below 3%. But experts say that today inflation is not the biggest problem. Raw model of the economy, sanctions, economic policy uncertainty, high taxes and low domestic demand are showing great risks. There is also a danger of “blowing bubbles” in some sectors and the emergence of a new crisis.

In the Higher school of Economics held an expert discussion on the main directions of monetary policy in 2018-2020. A report on the round table were Igor Dmitriev, Director of monetary policy Department, Central Bank of the Russian Federation.

“Hats off to the Bank!” said HSE academic supervisor Evgeny Yasin, getting to the moderation discussion. Compliment attitude to achieve 2.7% by the end of October, what in Russia never was.

After this introduction, the representative of the Central Bank had nothing to do, as soon as humbly to report to the audience about the main parameters of the monetary policy and the economic Outlook.

“Overall we have a fairly cautious Outlook. The pace of potential GDP growth, we see 1.5-2% in the medium term, if not may be embroidered with structural problems,” — said Dmitriev.

For the current year, the RF Central Bank predicts economic growth of 1.7-2.2 percent.

The Ministry of economic development expects Russia’s economy by the end of this year will overcome a lath in 2%. In the third quarter, according to the Department, the increase was 2.2%. “Overall, the recovery… it gradually continues,” — reported to the President in October, the head of the Ministry Maxim Oreshkin.

Price growth will resume in 2018

Igor Dmitriev said that the Bank of Russia forecast of inflation this year remains at 3%. But soon she’ll be back to 4%.

“For 2018 will come back. Dynamics of inflation near the target, as the exhaustion of various factors will be closer to 4%. To speak about exact timing is difficult, but we believe that 4% inflation will return,” — said Dmitriev.

Recall to achieve the target (benchmark) of 4%, the Central Bank tried in 2014. In 2105 year, the inflation rate reached a record 12.9 percent. The regulator originally planned to achieve the target of 4% by 2017, i.e., at the end of 2016. But in the end the inflation was 5.4%. Later, the representatives of the Central Bank has adjusted the period of performance of the promise at the target: in 2017. And then in the statements of the representatives of the Central Bank mentioned the new benchmark by the end of 2017.

But in June of 2017, inflation almost reached the target level, amounting to 4.4% and in August there was even too much, or in the language of financiers — “flights” prediction. Inflation in August dropped to 3.3%. Due to lower prices for vegetables.

“Refer to this inflation quietly. Although this year will be remembered for the dynamics of prices “borsch”, a significant volatility of fruit and vegetable inflation. Of course, 4.4% in June was the “flights” of our predictions, but close to 4%” — justified then Dmitriev.

The Ministry also lowered the inflation forecast for 2017 to 2.5% to 2.8% from the previously expected 3.2 percent.

According to Dmitriev, if anything should be afraid, it is only the difficulties associated with the retention target achieved at 4%.

“Ahead is possible even even more difficult a period of maintaining inflation close to target. How the economy will adjust, how quickly, how quickly will adapt to inflation expectations? How these processes will be stable near the 4%?” — said Dmitriev.

Can have a negative impact on inflation the decline in oil prices and the instability of the ruble against major currencies. “Some significant risks for the ruble exchange rate here, too, we do not see. As the stabilization of the economy, inflation, inflationary expectations, the exchange rate naturally is also stabiliziruemost,” — said Dmitriev.

Stabilization of inflation is a myth?

Experts invited to the round table of optimism regulator did not share. Inflation is rigidly clamped, and to overcome inflationary expectations of the population and the business fails. Whether trusts in General, the Central Bank in its forecast? Stabilization of inflation at 4% — a reality or myth?

Hold out a target with such sentiments, asked Dmitrieva experts and, in particular, Sergei Dubinin, former head of the Central Bank. And if the Central Bank believes that to overcome inflation, why then continue to hold high the key rate? Now she is 8,25%.

This Dmitriev answered in that spirit that the Central Bank continues to operate a conservative for many reasons. Seasonal rise in vegetable prices, the uncertainty in the oil market, shortage of labour – all this can accelerate inflation.

Andrey Nechaev, the famous economist and Minister of economy of Russia in 1992-1993 were asked to name, what is so extraordinary may happen in the economy, why Central Bank fears of inflation and in the end clamps of economic growth?

Dmitriev said that the main risk of accelerating inflation, the Central Bank considers “a sharp change in the savings behaviors of households for consumption”.

“If consumer loans, the reduction of deposits may be dollarization — all of these processes can lead to the fact that inflation will accelerate, and the trust is a fragile thing,” — said Dmitriev. According to him, it is unlikely inflation will accelerate to 8%, but up to 5% may. While Dmitriev assured that the regulator has an Arsenal of tools to curb the growth of prices.

Inflate new bubbles

Consumer behavior model, of course, is a threat, but there are many other risks that the Central Bank ought to consider, says Oleg Vyugin, Professor at the HSE, formerly first Deputy Finance Minister and first Deputy Chairman of the Central Bank.

Inflation will influence the inflow of capital, lobbying monopolies, especially natural monopolies. Geopolitical risks and sanctions is another significant risk.

According to vyugina, saving raw model of the economy is a risk, as, indeed, the transition to the investment model.

“But to discuss the risks of the investment model, even useless as there are no investments either foreign or domestic,” said Vyugin.

Another real danger – the “bubble” in the real estate market. The reduction of the key rate of the Central Bank and the subsequent decline in mortgage rates may lead to inflating a new bubble. “Only a growing economy can remove these risks,” — said Vyugin.

According to him, is not so important, in the end, high inflation, or low. In the early 2000s, the Central Bank and the government were not afraid of rising inflation in a growing economy because the economic model in Russia was not raw, but in 2004-2005 began roll in the raw model and is now so dangerous was the risk of the development of the resource rent.

“The fact that inflation may be 4% — we and could not dream. But whether the benefit of this level of inflation – we still need to see” — picked up the theme of Igor Nikolaev, Director of the Institute of strategic analysis FBK Grant Thornton.

According to him, even with low inflation, real disposable incomes of population went negative, the net financial result of the many businesses or minus 8%,” — said Nikolaev, adding that the business does not consider low inflation the incentive to invest.

High inflation, according to Nikolaev has never been a major problem for business. “Worse than the uncertainty of the economic situation, high taxes and low domestic demand”, — said Nikolayev.

The uncertainty of forms, for example, a significant gap between the key rate of the Central Bank and inflation. This is a risk for the rouble. Nikolaev urged the Central Bank not to forget about the recurrence of economic crises. “Crises no one is waiting, but they come with the regularity of 7-12 years. Which can cause another cycle, this topic is debatable, but the risk of such a”, — concluded Nikolaev.

Not the policy of the regulator, and by the increased oil prices gave an opportunity to strengthen the ruble and in the end, inflation in Russia has stalled, said earlier the experts of the Ranepa. But further curb the growth of prices problematic. Inflation, fuel costs to support the standard of living of the electorate ahead of presidential elections.



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