Central Bank cutting key rate by 0.5 ppt insufficient to renew investment - RSPP president

MOSCOW. Feb 19 (Interfax) - A survey by the Russian Union of Industrialists and Entrepreneurs (RSPP) has shown that over 80% of the companies questioned have suspended or frozen their investment programs, with the high key rate of the Central Bank of Russia remaining the main obstacle to investment, RSPP president Alexander Shokhin said.

Shokhin said that the current pace of monetary easing is insufficient to resume investment activity when commenting on the key rate dynamics at the Russian Business Week financial forum.

"Let me remind you that last year, our GDP growth was 1%, and inflation slowed to 5.6%. This is certainly cause for moderate optimism, but we also note that our key rate has been high for too long, and we welcome the fact that the Central Bank has moved into a cycle of key rate reductions. However, it is clear that a reduction of 50 basis points is insufficient to revive investment or prevent, for example, excessive debt servicing costs for companies," Shokhin said.

The Central Bank cut the key rate by 50 basis points to 15.50% per annum at its meeting on February 13. The regulator said in a published statement that it would assess the advisability of further reductions in the key rate at upcoming meetings depending on the sustainability of the slowdown in inflation and the dynamics of inflation expectations. The Central Bank's next board meeting to discuss the key rate is on March 20.

"A slowdown in lending inevitably leads to a slowdown in investment. This is also a key challenge. We asked companies whether they are continuing previously initiated investment projects. The results are that 19% are implementing projects in full, with the remaining 81% - a relatively large number - having seen projects either slow down or stop altogether, and 15% of the respondents said that investment projects are completely frozen," Shokhin said, citing data from the traditional survey conducted by the RSPP ahead of Russian Business Week.

Shokhin added that companies must now appeal to the government, the Finance Ministry, and the Central Bank for debt restructuring or loan deferrals. "Many systemically important companies that find themselves in the red zone are receiving these support measures, though we do understand that this postpones many problems for a year or two, and certainly does not resolve the problem completely," he said.