The Bank of Russia announced the beginning of monetary support the economy that have long made the Central banks of the US, EU and China. The national Bank of Belarus is silent, although the country’s banking system and the coffers of the Ministry of Finance simply burst of money.
Unlike the US and EU Central banks which openly adopted a quantitative easing of its monetary policy to support the economy, the Bank of Russia about any programs not reported. It just lowers the stakes and is preparing to increase the amount of funds banks have for lending business.
Vladimir Putin has forced officials to relent
Thus, on 5 July, the head of the CBR Elvira Nabiullina on the TV channel “Russia-24” stated the following: “We see according to the latest data, the latest weak economic data, and, of course, that we are forced, probably in July, to think seriously about the path of reducing interest rates”. It had previously stated that the Central Bank at its meeting on 26 July to consider the question of reducing the key rate by 0.25 percentage points and 0.5.
Such actions of the Central Bank contradict its previous policy and beliefs personally, Elvira Nabiullina, who previously believed that the Central Bank should think about slowing down the rate of inflation, not about supporting the economy with money. So, July 4 at the International financial Congress in St. Petersburg, she said that “if you try handing out cheap money masking the structural problems that our country will lose even more time: first, we will lose hard-won macroeconomic stability, and then we re-solve the problem of its recovery, undermining confidence in the future among the population and business.” But such beliefs did not prevent the head of the Russian Central Bank to announce the desire to quickly make money cheap.
Moreover, the accelerated rate cuts is not the only planned mitigation measure. From 1 January 2020, the Russian Central Bank will reduce the risk weighting on loans to corporate borrowers in order to stimulate credit to support the economy of the country. Namely, the risk ratios on loans to corporate borrowers, which belong to the first and second category of quality, and the securities of which have access to trading on the exchange is reduced from 100% to 65%, while the corresponding figures for subjects of small and average business will be reduced from 100% to 75-85%. According to estimates senior analyst of Raiffeisenbank Denis Breaking, it will allow banks to release about 18 trillion. rubles, which they can potentially direct lending to the real sector of the economy.
Thus, the announced steps of the Russian Central Bank look quite seriously and is able to provide substantial support to the economy. In this connection there was such a fundamental change in the policy of the Central Bank, Elvira Nabiullina said. Apparently, this is due to pressure from Russian President Vladimir Putin, which he has on the government, trying to force officials to implement national projects.
This is something new, as in 2012, Vladimir Putin also took the may decrees, as in 2018, in line with that expected to increase the pace of development of the economy and raise the standard of living of the population. But the government and the Central Bank then probationary orders of the President, writing off its inaction on international sanctions. Officials tried to do the same now, sabotaging the implementation of the national projects proposed by President Vladimir Putin in 2018, but the President of the Russian Federation at this time, constantly requires them to action. So, on 3 July at the meeting in the government of Vladimir Putin reminded the Minister of Finance of the Russian Federation Anton Siluanov about the need to reduce mortgage rates, planned in the framework of national projects for privileged categories of the population to 6% and instructed him to control this process in conjunction with the Central Bank. That is, the Russian President passed to manual control by the government and the Bank of Russia.
Officials, seems to have caught the change in the approach of Vladimir Putin to rule the country and began to look for scapegoats, whom the President eventually fired, as the manner of exercise of the President’s instructions they do not seem to see. In this regard, the head of the Ministry Maxim Oreshkin, who is a candidate №1 on the dismissal, predicted a recession in the Russian economy in advance and blamed it on a possible event, the Bank of Russia. Elvira Nabiullina seemed to realize that she can be extreme, and decided to change the policy of the Central Bank, despite their former beliefs.
The situation in Russia now resembles what happened in the leadership of Belarus after the government has promotional in 2017 behalf of the President of the country Alexander Lukashenko to raise the average salary in the country up to 1 thousand rubles. The President eventually broke up the government. This thing goes in Russia. She also faces a government crisis, and, as usual, devaluation.
Belarusian banks are bursting with money
What is happening in Russia events will have a direct impact on the economy of Belarus. On the one hand, the growth of the Russian economy, which is possible in connection with the increase in lending by Russian banks, will increase the Belarusian exports to this country. On the other hand, we can import inflation and devaluation, as if the Russian Central Bank will indeed hold significant monetary policy easing may come true and the fears of Elvira Nabiullina about the risks of destabilization of the financial market.
Besides, the situation is complicated by the fact that Belarus is brewing its own program of monetary policy easing, and at once for two reasons.
First, without such mitigation, the government is unlikely to provide the growth rate of GDP by the end of 2019 at 4%. This is the reason that and the concerns of the Russian officials in connection with the threat of sending in his resignation.
Second, in the Belarusian banking system has developed in excess of ruble resources at the existing level of interest on loans, not use in the economy. That is, the national Bank have to cut rates, as they do not correspond to market conditions. In the meantime, he prevents this by withdrawing money by placing its own bonds.
In may of this year ruble-denominated assets of commercial banks (excluding development Bank) increased by 695 million rubles compared with April and made up of 34.89 billion. But the credit debt of Belarus to the banks in Belarusian rubles grew by only 310,5 mln. rubles – to 23.96 billion. The excess funds did not hit to the economy from the banking system is taken by the national Bank. Thus, the auction on placement of its short-term ruble-denominated bonds on 4 July, he was attracted to 2.98 billion rubles, although at a similar auction about a year ago – just 0.59 billion.
A similar situation exists with the currency. Assets of commercial banks in foreign currency in may increased by depth 288.7 million and amounted to 18.57 billion. While foreign banks ‘ assets in may increased by 524,6 million USD to 2.09 billion dollars. That is, the currency has been bred abroad. In addition, the Finance Ministry in may issued a long-term foreign currency bonds to 303.6 mln dollars.
Excess resources should theoretically lead to lower interest rates on loans. This process has already begun. Thus, Belarusbank since July 1 has reduced interest rates on newly concluded loan agreements for the construction and purchase of housing up to 14.5% per annum. And interest rates on newly issued loans for consumer needs and overdraft credits reduced by 0.5-1 percentage point. Looks like act and some other banks.
So monetary easing in Belarus has already begun, but until the national Bank and Finance Ministry are trying to stop him by diverting excess resources from the market and preventing the lowering of rates. The intention of the regulators, of course, the best. Apparently, their leadership, and Elvira Nabiullina, fears of destabilization of Finance. But you can expect that as monetary policy the Russian Central Bank, Belarusian national Bank will have to accept the inevitable and to start the monetary stimulus of the Belarusian economy. As for risks, they are quite large even without monetary stimulus in RB, as it is actively engaged in other countries.