‘A modest reduction won’t have a great impact on our economy’

An expected reduction of the key rate by 0,5% to 10,5%, which was carried out by Central Bank yesterday, generated different opinions. Some experts estimate the actions of the regulator positively, some of them criticise the untimely actions. However, the majority of them concur that the reduction of the key rate won't influence the economy much but can have a psychological impact. Moreover, the experts are waiting for its further reduction.

• 

  Igor Shuvalov first Deputy Chairman of the Government of the Russian Federation

  We welcome the decision of the board of directors of the Bank. I think it will be positively perceived by the market. It is very good news.

• 

  Mikhail Khazin Mikhail Khazin’s Economic Research Foundation

  They should have reduced the key rate. I don't know what Central Bank goes by. This 0,5% will slightly influence the economy. I think there won't be a great effect. It is a kind of demonstration: Central Bank is trying to give a signal to the banks to credit the real sector. I don't think someone will risk to increase the credit of the real sector when nowadays people's income is reducing and sales are falling – the risks are huge. In general, the growth of the credit is a rare thing when the economy is falling. Consequently, we mean Central Bank finally understood the economic reduction continues falling in the country as a result of the monetary policy of the authority, and they decided to handle this fall this way.

• 

  Pavel Sigal vice president of Opora Rossii

  Generally speaking, it won't have an impact on the economy. Firstly, it was mentioned a long time ago, and this step was expected. What is more, the key rate changes almost nothing in Russia. It is thought inflation will decrease too, so that the banks will have access to cheaper lombard loans. But still the 0,5% is nothing compared to the general level of interest rates. If this trends will preserve, yes. Nabiullina says inflation will be 5-6% till the end of the year, and it will reach 4% in 2017. If she says it, it means it is supposed that the rate will be reduced further on. If it reduces by several digits, it can influence some components of the economy. But 0,5 won't influence at all.

• 

  Aleksey Boyko managing director of VTB24’s regional office in Tatarstan

  These positive processes have being taking place non-stop here. And every process is more and more positive. To tell the truth, I don't find any serious foundation for even 0,1%. In my point of view, this reduction is a demonstration. You must admit it is a kind of positive. It is neither harmful nor dangerous. It is useless but positive. This is why it is 0,5%. In my opinion, it is doubtful that it influences the economy. It is early to speak about possible consequences. As for the forecasts, I've heard like in a year it will be possible to talk about 6-7% rates. Subjectively, I don't think it will have happened by the end of 2016 or in the middle of 2017, though, undoubtedly, the geopolitical factor, which exists, can be both 6 and 12%.

• 

  Bogdan Zvarich analyst in FINAM

  The regulator is trying to be a bit conservative. The thing is that he takes into account possible risks of a worse situation in exterior markets. It, in turn, will lead to negative consequences in the economy. Unfortunately, oil prices can still fall – it can weaken the national currency and make inflation grow a bit.

• 

  Maksim Osadchy head of Analytical Administration of Corporate Finance Bank

  Such a careful reduction happened because of the preservation of inflation risks. Moreover, despite a relatively high key rate, inflation is firmly at over 7%. The reduction of the key rate can favour the inflation growth, and inflation risks are still high enough because of a number of factors: no one is going to lift the sanctions during these 6 months, oil can drop, and the budgetary deficit is growing. The analytical community had not expected that the rate would be reduced today. A half of the analysts thought the rate would be decreased, the other half was sure it would be the same. I told this Monday to RBK the possibility of a reduction by 0,5 was fifty-fifty. Another thing is that we are still in a structural liquidity shortage. Central Bank is still a net lender of the banking sector. As a consequence, this circumstance neither favours the radical key rate reduction. I suppose this modest reduction by 0,5 won't have a great impact on our economy. It will insignificantly favour the revival of the credit market and, as a consequence, the fall of GNP. This weakness in the monetary policy will favour the inflation growth, outflow of capital from Russia and weakness in the ruble.

• 

  Yan Art vice president of Association of Russian Regional Banks

  It will have an impact on the economy not mathematically but psychologically. In other words, Central Bank confirmed it supposes the current rate inorganic, unsuitable for the Russian economy and demonstrated a psychologically important reduction. Indubitably, neither loan price nor deposit price will change. The fact is good in itself, especially if we expect the next decrease in August-September. In general, while the rate has two digits (I don't mean two digits literally: 9,5 are always bad), it is not capably to act in terms of economy because, if we take the key rate, add even a 3% bank margin, the price of money borrowing in the country is equal to the profitability of small and medium businesses, if they are not sellers. So, it is almost impossible to use money for such a price to develop some business, which will give you back the price of the money at best.

  Today obviously there are advantages among all bad things in the economy in the absence of significant inflation. Central Bank is afraid to breach this advantage by making the money cheaper in the market and more available. This is why, on the one hand, I think Central Bank says to the economy: 'Yes, we are gradually reducing the rate'. On the other hand, it is afraid to breach that worst price balance we have today in Russia. You must admit we are not witnessing any serious inflation, not to speak about the official statistics where everything is always good.