The extra money deposited in Central Bank
Semyon Mikhailov
Artyom Korotayev/TASS
The Bank of Russia continues to withdraw liquidity from the financial sector. At the end of August he spent the second month Deposit auction. In total, the regulator has drawn on their accounts 320 billion rubles at an interest rate above 10% per annum. The presence of several major banks surplus liquidity suggests that the banking system has ceased to meet the needs of the economy and tight monetary policy the Central Bank continues to push economic growth and consumer demand.
On 30 August during a one-week Deposit auction of the Central Bank’s banks placed to 220.8 billion rubles of excess liquidity under of 10.41% per annum with the prescribed limit of 280 billion rubles In the auction was attended by 76 credit organizations from 35 regions of the country. The previous auction held on August 9. In the framework of the Central Bank has attracted banks 100 billion rubles average Weighted rate on attraction made up of 10.22%. The auction was attended by 62 the Bank, and proposals from their party exceeded the limit of the Central Bank (100 billion rubles) is almost twice, amounting to 187 billion rubles.
The necessity of holding Deposit auctions, according to a press release of the Bank of Russia due to influx of liquidity into the banking sector via the budget channel and need to maintain short-term money market rates close to Bank of Russia key rate.
Central Bank during the year, awaiting a transition from a liquidity shortage of the banking system to a sustainable surplus. According to the Central Bank, a structural surplus of liquidity in Russia’s banking sector may come in November — December 2016, and the amount of surplus, according to preliminary estimates, at the end of the year may amount to about 1 trillion rubles. Thus, this trillion won’t go into the economy, and will in some way absorbed by the Bank of Russia.
Controller as the main reasons leading to the occurrence of surplus liquidity, refers to the use of Treasury Reserve Fund to Finance the Federal budget deficit.
This year, according to the Finance Ministry, it is expected the Federal budget deficit in excess of 3% of GDP, and the Reserve Fund, whose funds are used to cover the deficit, may be exhausted by the end of this year (on August 1 it was of 2.56 trillion rubles, or $38,18 billion).
However, it is clear that with adequate monetary and regulatory policy, surplus liquidity should not arise — the “extra” money transformirovalsya in loans to households and businesses. And in this case, the problem is that the banking system has ceased to meet the needs of the economy.
In particular, the main causes of surplus liquidity are as follows. First, this excessively high level of real interest rates in the economy because of inflated Bank of Russia key rate (now it is 10.5%). Taking into account the forecast of the Bank of Russia on inflation (less than 5% in July 2017), the real interest rate, laying only in the key rate of the Bank of Russia is around 6-7% (on loans for business — even higher), which is a very high level by any standard for Russia and other countries. Exposing this level of real interest rates, the Bank of Russia makes it extremely unprofitable loans for the borrowers.
Second, interest rates on loans do not meet the profitability in many sectors of the economy, especially in the manufacturing industry. In particular, in the economy the level of profitability of sold goods, works, services by the end of 2015 amounted to 9.3%, in production of machinery and equipment at 8.2%, construction — 5.4 per cent. For comparison, the weighted average interest rates on loans to nonfinancial organisations for the term exceeding one year is about 14% per annum.
Third, the Central Bank holds constant tightening of banking regulation, including the transition to standards Basel III. This leads to an increase of banks ‘ claims on collateral from borrowers. However, in a crisis, the size and quality of the collateral is objectively reduced.
Thus, surplus liquidity is formed in extremely low availability of credit resources for business. In the current environment (aggravated by collapse of domestic demand, including for the same reasons) prefer to abstain from the implementation of investment projects, and the economy loses potential drivers of growth.
The result is a situation when the business becomes a net creditor of the banking system, and not Vice versa. Thus, in the second quarter of 2016, observed the situation, when the growth of volume of deposits of legal entities in banks occurred against the backdrop of significant reductions in their indebtedness to banks. Deposits increased during the quarter to 84 billion rubles, and the volume of debt decreased by 1149 billion rubles., net debt non-financial corporations to banks have declined by more than 1.2 trillion rubles, Respectively, the surplus of liquidity and is formed due to the withdrawal of funds from the business banking system. And the placement of these funds in the Central Bank will complete the process of their withdrawal from circulation.
But the recovery of the economy needs new drivers of growth based on domestic sources.
This requires overcoming such structural limitations as the high degree of depreciation of fixed assets, low coefficient of updates, lack of infrastructure. However, modernization requires increased investment, which is possible only if there is available credit.
Tight monetary and regulatory policy of the Central Bank leads to the opposite effect. The attainment of low inflation will give nothing, if the answer to any inflation risks to be “strangulation” of investment activity. The failure of the investment will only ensure the growth gap in productivity and competitiveness with the leading countries.
Accordingly, the expectation of surplus liquidity should force the Central Bank to implement tools for its absorption, and, conversely, to use all available means to sustainable surplus liquidity to avoid. The key rate should be reduced substantially — to a level that meets the needs of the economy and ensuring the implementation of investment projects and the development of industries.
The Bank of Russia is overly focused on achieving his own goals on inflation and is ready to sacrifice other indicators of economic development. So, in the press releases of the Bank of Russia often used the statement that slower growth in consumer prices will contribute to weak demand, including under the influence of a moderately tight monetary policy”.
Moreover, in may 2016 in one of the materials of the Bank of Russia has clearly stated: “To achieve the stated Bank of Russia inflation target should the slowdown in the growth of a wide range of domestic economic indicators. Thus, in fact, the Bank of Russia not only recognizes its role in the decline of the Russian economy, but also shows their interest in low development indicators.
At the end of the July meeting of the Board of Directors, which decided to leave its key rate at 10.5% per annum, the Central Bank said that “real interest rates in the economy (including inflation expectations) will remain at a level that ensures that the demand for credit not leading to inflationary pressure and will maintain the incentives for savings”.
In other words, the stakes remain high, not to “accelerate” consumer credit and lending to the real sector. Now the industrial loan company may take 10-15%, the percent on the consumer credits is 16-33% per annum, while the current inflation rate of 7.2%, the expected inflation at the end of the year is 5-6%.
Earlier in one of the materials of the Central Bank was explicitly stated: “To achieve the stated Bank of Russia inflation target should the slowdown in the growth of a wide range of domestic economic indicators.
In the latest report of the Central Bank “the Financial review: terms of conduct of monetary policy” States that the regulator is waiting for the banking system transition to a “structural surplus liquidity,” in the beginning of 2017 because of the budget deficit financing at the expense of the Reserve Fund. Therefore, a press release of the Central Bank was eloquently entitled: “the Expected transition to a structural surplus of liquidity would not contribute to the easing of monetary conditions.”
As already emphasized, the Central Bank deliberately not going to take any steps to stimulate lending. On the contrary, formed it absorbs liquidity by using different instruments — sales to banks of government bonds, placing the “extra” funds on Deposit, etc.
No plans, the Bank of Russia to develop specialized mechanisms of refinancing of banks that lend to investment projects. As the argument of the regulator refers to the fact that the current limits on specialized refinancing instruments are selected. But this is not surprising given the level of interest rates on these instruments.
Rate with the end of 2014 remains unchanged and, despite the Economics of the process, is fixed at 9% per annum. However, the attraction of financial resources for the implementation of investment projects for up to three years expected inflation through the year of 4-5% makes these instruments unattractive. Entrepreneurs will prefer to take the investment pause (which is already delayed), waiting for when interest rates will start to match the macroeconomic situation.
In contrast to instruments of the Bank of Russia, the programme for financial support of the government, implying a lower cost of financial resources, have no problems with applications. For example, the industrial development Foundation, whose programs provide loans at the rate of 5% per annum in 2015 has received 1282 applications for funding totaling $ 449 billion rubles.
Of them were approved 74 projects with a total amount of borrowings RUB 24.6 billion According to the Foundation, the total budget of these projects (including previously invested funds and other sources of financing) is more than 90 billion rubles a Similar situation with a significant number of applications for financial and guarantee support is observed in other institutions and development programmes of the Federal and regional level.
High demand programs of development institutions necessitates their capitalization at the expense of the budget. So, in 2016 it is planned to increase the capital of industrial development Fund in the amount of RUB 20 billion
General policy of the Bank of Russia is largely torpedoing efforts to emerge from the recession and that the government of Russia. In particular, the adopted anti-crisis action plan. It provides for the extension of the activities of development institutions (industrial development Fund, Eximbank of Russia, the Russian export centre, SME Corporation, etc.), providing financial and other support to promising projects with export potential, innovation, potential for creation of productive jobs.
In addition, the plan includes implementation of a number of “sectoral” programmes for mitigating the effects of major fall in domestic demand and lack of available loan funds. Among these programs of support for the automotive industry, agricultural machinery, light industry, program of support of mortgage lending.
In addition, the authorities subsidize the costs of payment of percent on loans under government programs in support of key sectors of the economy (programme of support of agriculture, program of development of the automotive industry, Housing programme etc.). In 2016 at the expense of means of the Federal budget is providing about 95 billion rubles of subsidies for compensation of part of expenses for payment of percent on the credits.
In selected markets, government subsidies of lending to make a decisive contribution to support the demand. Last year the share of credits with state support has accounted for about one third of the volume of mortgage loans that were acquired over 10 million square meters of housing.
By estimations of participants of the market, in 2016, a significant part of purchases of residential property (50-80% according to different projects) in the primary market is also part of this program. On the car market in 2015 the share of loans under the program of state support accounted for about 35%.
But we must recognize that the possibility of budget support to the industry is very limited.
The authorities have to abandon the indexation for inflation of pensions, salaries and social payments, which negatively affects incomes and consumer demand.
For example, the second indexation of pensions this year will not be, instead, at the beginning of next year, all pensioners will pay a lump sum of 5 thousand.
Numerous experts (the Stolypin club, the Institute of economic forecasting Russian Academy of Sciences, Financial University under the government etc.) believe that the recession and budget constraints, the Bank of Russia should soften its monetary policy, as well as to develop and offer the economy (especially the real sector) specialized funding mechanisms of the investment process.
Meanwhile, the Central Bank is intransigent, almost every official statement of the de facto emphasizing that he is willing to sacrifice economic growth for lower inflation by the end of 2017 to 4%.
The next meeting of the Board of Directors of the Central Bank’s key rate and monetary policy will be held on September 16. Most likely, the regulator will keep the rate at the same level or symbolically reduce it (10%). All other parameters of the Central Bank policy will remain unchanged, analysts predict. Thus, the transition to beginning of active phase of restoration of economy of Russia will be again postponed indefinitely.
