14 May 2024 17:30

There are signs of overheating in Russian economy, but labor market restrictions are not as significant as expected - Reshetnikov

MOSCOW. May 14 (Interfax) - The Russian economy is showing signs of overheating, but it can develop with higher inflation than the target, and the labor market is quite flexible and the restrictions on it are not as significant as expected, the then candidate for the post of Russian Minister of Economic Development Maxim Reshetnikov said on Tuesday in the State Duma.

Commenting on the question from deputies about how high interest rates can limit growth in industry, Reshetnikov said, "It is not very correct to put the Central Bank and industry into opposing camps. In the long term, without financial sustainability and without financial stability, there will be no normal economic development," he said.

Meanwhile, Reshetnikov said that "we [the government] should be seeing the situation, perhaps more clearly and comprehensively."

"The Central Bank is struggling with the overall growth rate of lending to the economy, believing that the economy is overheated. Indeed, there are signs of overheating, although, for example, restrictions from the standpoint of the labor market, from our point of view, are not as significant as expected. And the economy is able to develop even at a slightly higher inflation level than the one designated as the target [4%]," he said.

"But we must understand - this volume of lending - where does it go? Does it go to those sectors that we need, or does it go to some other areas? We need to look for this balance. Consumer lending - do we need it in such volumes? Jumps in mortgages - our mortgages are growing at double-digit rates, then overheating occurs - the rate of growth in housing prices is off the charts, and so on. We need to be more predictable and more consistent in this, leaving room for lending to industry. If lending to some industries seems more profitable for banks than what we need, then compensate from the budget, including subsidizing interest rates [for lending to companies from industries that are a priority for the government]. So, understanding that we cannot play fiscal policy against monetary policy, as they say, we can adjust it a little," Reshetnikov said.

"We have definitely made progress in the dialogue with the Central Bank. We definitely understand this complex picture within the government and with the Central Bank and are discussing it," he added, saying that he is a supporter of the fact that "we [the state] should take on a larger amount of interest rate risk to support the real sector."

Reshetnikov also said that the current unemployment rate is "abnormally low," but the economy is developing, which says something about the flexibility of the labor market.

"I would emphasize that our economy has been developing for two years now with a low unemployment rate for us, which can probably already be said to be abnormally low. This suggests that the labor market is flexible, that enterprises can reconfigure processes. The national Labor Productivity project has made its contribution to the flexibility of the labor market and to enterprises, he said, and the further replication of this national project is an important task.