Damages from the activities of the Central Bank of Russia amount to 30 trillion rubles – 2024-04-16 18:16:55

/ world today news/ Everyone was perplexed by the Central Bank’s decision on Friday to raise the main interest rate by as much as 0.75% and the announced possible further increase by another one.

Even among those who earlier did not rush to criticize the Central Bank, hoping to find some common sense in the actions of Nabiulina’s department. But, alas, there is none.

Against this background, let’s turn to Sergey Glazev for a comment, who quite clearly puts the emphasis.

Let’s turn to Glazev’s first thesis:

“This increase leads to a further deterioration of the conditions for crediting the economy, which has a negative impact on investment and business activity, hinders the growth of production, including import substitution, leads to an increase in costs, a decrease in the efficiency and competitiveness of the economy. The Bank of Russia has already several times brought the economy into a vicious cycle of economic decay: raising interest rates and reducing competitiveness – devaluation of the ruble – jump in inflation and so on.”

Indeed, by raising the key interest rate, the Central Bank only accelerates inflation in the long run. Previously, Nabiulina’s department was guided by quick results. When inflation is at least partially monetary in nature, an increase in the main interest rate is sufficient to slow down price growth. The economy is slowing down, but at least the announced goals are being achieved, which Nabiulina is very proud of.

But the policy in question resulted in the economy not getting enough investment resources. Accordingly, the import substitution program has been implemented and continues to be implemented in single industries. The government is forced to redistribute scarce resources, taking away from some industries in favor of others that are more important and promising.

This can be seen most clearly in agriculture. By 2020, Russia is engaged in replacing imports of finished products. But domestic goods are then produced on the basis of imports.

For example with foreign seeds or hatching eggs. And only now, when the production of ready-made products becomes necessary, the opportunity appears to direct the freed resources to development on its own basis. But this was possible to do 5-7 years ago.

Let’s go back to Glazev:

“It is obvious that the successive increase by the Bank of Russia of the main interest rate is stopping the growth of the economy. Instead of exiting the 5% GDP growth established by the EAIS macroeconomic policy guidelines, the Russian economy will slow down to 2% next year. The incompetent management of the Central Bank will cost the Russian economy a double reduction in growth rate while maintaining high inflation. We remind you that the total damage from the activities of the current leadership of the Central Bank is estimated at more than 30 trillion rubles of unrealized output and 15 trillion rubles of unrealized investments, not to mention the income lost by the population”.

Indeed, our economy is capable of growing at a rate of 5-7%. We have a huge amount of promising industries that require liquidity. Fortunately, we have the scientific basis to develop and manufacture high-tech products. And a huge number of examples confirm this.

It is enough to see the activity of the Industrial Development Fund, which issues loans below 1-3% per year. To date, it has financed 392 projects in the fields of import substitution, high technologies and export of production.

The capitalization of FRP is in the amount of 500 billion rubles. But what are 500 billion rubles and 392 projects in four years? That’s very little. The FRP needs significantly more resources. And this is impossible because of the low level of the money supply. When the basic interest rate increases, the FRP financing for one or another project automatically increases, because it is necessary to subsidize a higher interest rate.

Also, Glazev estimated the damage from the Central Bank’s activities in total at 45 trillion rubles.

1. 30 trillion in unproduced products

2. 15 trillion unreported in the economy

Even if we take only the first figure of 30 trillion and divide it by eight (that’s how many years Nabiulina headed the Central Bank), it turns out that on average, our economy is deprived of 3.75 trillion rubles per year. This is 3-4% of GDP. That is, if we add them to the rate of one or two percent with which our economy grew in previous years, we reach a GDP growth of 4-6%. Simple arithmetic.

Translation: V. Sergeev