Elvira Nabiullina: “The past two weeks have been marked by more positive sentiments”

Market expectations favour

Perhaps for the first time in the past three months, the head of the regulator began the briefing on an optimistic note, saying: “The past two weeks have been marked by more positive sentiments, which is associated with the expectation of the abolition of coronavirus restrictive measures.” Nabiullina reminded that signs have appeared in many countries that the coronavirus epidemic is showing a decreasing trend and the governments are beginning to gradually remove or ease restrictions. All this is supported by the signs of renewed growth in global markets.

“Oil prices continued to recover: Russian Urals is approaching $35 a barrel, which is higher than the conservative assumptions that we put in the forecast for 2020," the speaker noted.

But not everything is so rosy: the head of the Central Bank admitted that “markets live by expectations and tend to be ahead of developments”. According to her, objective data on the situation in the global economy is still far from optimistic.

“Unemployment continues to grow in the US and other Western countries. In China, the economy has already largely closed the January-February dip but remains below the growth trajectory expected for this year. In Russia, industrial production in April fell by 6,6% year-on-year. This is less than many expected, and less than in most other countries," she said reassuringly.

The Central Bank confirmed its easing policy in June

To revive economic activity, the Bank of Russia will continue its policy of easing monetary policy. The head of the Central Bank again stated that the potential for further reduction of the key rate in June remains.

“The option of reducing by 1 percentage point is “on the table”, but the probability is still less than 100," said Nabiullina.

But the tendency to ease monetary policy has its limits. Nabiullina said that she does not see the need to switch to a negative key rate in the foreseeable future. According to her, the rate level will be determined so as to ensure inflation near the target level of 4%.

GDP forecast: minus 8%

The preliminary macroeconomic forecast for GDP, voiced by Nabiullina, suggests that the pandemic will reduce it by at least 8%. In the real economy, the situation remains difficult. A survey by the Bank of Russia showed that every second company in the country faced cancellation or reduction of orders (although the increase in the number of the affected decreased slightly during the week from May 8 to May 14). The problem of working capital shortage is much more acute. Its lack was noted by 34% of enterprises instead of the previous 31%. The shock of demand for products is being experienced by 47% instead of the previous 45% of enterprises.

On the other hand, the Central Bank is seeing a recovery in the volume of payments made through the Bank of Russia's payment system. According to the head of the Central Bank, this may be the result of “redistribution of payments deferred from the non-working weeks in April.” “But even with this reservation, the normalization of calculations in the economy is evident this month," she stated.

SME's loans worth 530 billion have already been restructured

The head of the regulator reported on how loan support measures are being implemented for businesses and the population. She noted the trend: over the past month, the statistics of business requests for support is growing stronger than the statistics on requests from individuals.

Nabiullina cited statistics on individuals: they received 190,000 applications for loan repayment holidays over the past week, which is less than in the last week of April.

But SMEs continue to apply for support in loan restructuring. “Unlike loan repayment holidays for citizens, there is no tendency of declining growth of applications," Nabiullina said. According to her data, the approval rate was 74%. To date, banks have restructured approximately 11% of the portfolio of total loans to SMEs (not only affected industries) for a total amount of 530 billion rubles.

Interestingly, the attractive programme of preferential mortgages at 6,5% has a chance to be extended. Speaking about it, the head of the Central Bank noted that the programme shows efficiency. “If the government considers its extension, the Central Bank will support it," Nabiullina assured.

To support mortgage lending, the Central Bank intends to speed up the introduction of the principles of the Basel III agreement into banks' operations. It is possible that the changes may also affect the terms of car loan restructuring.

For bank maneuvers

For greater flexibility in managing liquidity, the Central Bank will start monthly repo auctions on Monday. This should support banks' readiness to restructure loans without fear that they will have a significant imbalance in the maturity of assets and liabilities. “The first auction of the monthly repo, as planned, we will hold this Monday. Its volume will be 500 billion rubles, which corresponds to the volume of 'fine-tuning' repos that we conducted in March and April," Nabiullina said.

She noted that the liquidity issued in the framework of repo auctions for a period of 1 month and 1 year will be taken into account when calculating the volume of regular liquidity absorption operations. Therefore, these operations will not significantly affect the total amount of liquidity in the system, money market rates, or the foreign exchange market.

At the end of the press conference, the head of the Central Bank answered the question about what recommendation the Central Bank will give to the Supervisory Board of Sberbank regarding the payment of dividends. Elvira Nabiullina said that she will propose to postpone the discussion of this issue to the autumn, when “there will be more clarity so that we can assess the need for capital and absorb losses.” Let us note that Tatarstan banks have already decided not to pay dividends for 2019, which was the most successful and profitable in recent years.