MOSCOW, April 24 (Reuters) – Russian Central Bank Governor Elvira Nabiullina addressed a press conference on Friday after the central bank cut its key rate by 50 basis points to 14.5%.
Nabiullina spoke in Russian. The quotes below were translated into English by Reuters.
ON THE KEY RATE DECISION
“Two options were discussed: keeping the rate unchanged and cutting it by half a percentage point. Those in favour of keeping the rate unchanged pointed out that the core inflation rate in our country has not fallen since the middle of last year and has remained at 4–5%, and that more convincing evidence of a decline in core inflation is needed. They also drew attention, of course, to the increased inflationary risks.”
ON THE REDUCTION IN ROOM FOR RATE CUTS
“As for the narrowing of the key rate range, as I have already said, inflation is, in our assessment, at the upper end of the forecast range. And yes, all other things being equal, this probably means less room for a rate cut.”
*ON INFLATION AND THE MOON
“It took humanity 50 years to return to the Moon. We too will return to 4% inflation; I am certain of that, and I am certain that it will happen much faster.”
ON FOREIGN CURRENCY EXCHANGE PURCHASES UNDER THE BUDGET RULE
“At current oil prices, it is possible to replenish the National Wealth Fund, which is positive for fiscal stability. We took into account that the Ministry of Finance had previously announced that it would not revise the (oil) cut-off price this year and would return to the budget rule. At the same time, it will take into account transactions deferred from previous months. Therefore, from the perspective of annual figures, this is neutral. It may only affect intra-year dynamics.”
ON THE OUTLOOK FOR A SOFT MONETARY POLICY AND THE ECONOMY
“In order to either cut the key rate more sharply or pursue a soft monetary policy, inflation would need to fall below target and there would need to be signs of a significant rise in unemployment; however, neither of these conditions currently exists. This is true not only in our forecasts, but also in those of analysts and the business sector.”
ON BUDGETARY RISKS
“There is currently debate regarding possible changes to the budget parameters…The higher the budget expenditure and the larger the structural primary budget deficit, the tighter monetary policy will need to be. What does a higher structural primary budget deficit mean compared to what was planned? It means that more money will flow into the economy via the budgetary channel. This means that the scope for private lending is narrowing.
“We will take this into account, but as the parameters have not yet been announced and discussions are ongoing, we recognise that this risk exists. It is there, and it has increased. I would also like to say that we are probably less confident now about the budget’s contribution to disinflation, as envisaged in the Budget Act.”
ON ECONOMY ACTIVITY
“…it is true that economic activity declined in the first quarter, and the growth rate in January–February was somewhat lower than we had expected. To a large extent, this is explained by temporary factors, which the president also highlighted. These include calendar effects; weather conditions, which, of course, could not have been predicted at the end of the year, and which had a significant impact on certain sectors, such as construction. Consumption fell following a surge at the end of last year, and businesses needed time to adapt to the new tax changes – it is quite difficult to predict how this adjustment would take place.
“However, based on the latest data for March and April, we can see that the economy is returning to growth…We conducted a business survey in April, and current assessments of the business climate have improved, while companies’ expectations for the next three months have also risen.
“The dynamics emerging in the first quarter reflect the consequences or the degree of tightness of monetary policy from a year ago. And we had reached the peak of monetary policy tightness. Now, however, the effect of the rate cut is beginning to materialise, and this effect will not be immediate either.”
ON MEASURES TO ACCELERATE ECONOMIC GROWTH
“…what we need is not a one-off surge or a temporary spurt, followed by yet another slowdown or decline. We need sustainable economic growth. And in the current circumstances, given the situation in the labour market, we can only grow sustainably at the rate at which labour productivity is increasing. Therefore, labour productivity is a key element of growth, including the reallocation of resources to those sectors and enterprises where the return on these resources is higher.
“From the perspective of monetary policy, the central bank contributes to the creation of predictable and stable macroeconomic conditions. And believe me, stable macroeconomic conditions and price stability are very important for decision-making, including investment decisions. Furthermore, we have tasks related to our role as a financial market regulator. And I see potential here for the development of the capital market, because it is the capital market that best reallocates funds to where there is a higher return, where labour productivity is growing. This is a whole set of measures that we are working on together with the government.”
ON ECONOMIC OVERHEATING
“We do not see any risks of an economic downturn… We believe we are already close to a point where the overheating of demand has been exhausted. This gap is closing. It is important that it does not reopen, which is why a very careful monetary policy is needed. However, we believe that we are now at a point where production capacity and the expansion of goods and services match the current pace of demand growth.”
*ON THE LABOUR MARKET
“”In our view, labour market tightness is easing. The labour market is adjusting due to various factors, not just unemployment. We are closely monitoring the situation regarding underemployment and workplace stoppages….If data emerges showing significant staff redundancies and a surplus of labour in the economy as a whole, this would imply a potential significant decline in consumer demand and a fall in inflation well below the target. If we anticipate such a scenario – rather than waiting for it to happen – and the data indicates that such a scenario is possible, then this would, of course, provide grounds for cutting the rate more substantially than the current baseline scenario suggests. But there is no such indication at present.”
(Reporting by Darya Korsunskaya; Compiled by Lucy Papachristou; Editing by Mark Trevelyan)
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