12 Sep 2019 15:53

No grounds yet for more aggressive rate cuts - Central Bank

MOSCOW. Sept 12 (Interfax) -There are no grounds yet for more aggressive rate cuts, Alexei Zabotkin, the head of the CBR's Monetary Policy Department, told reporters.

"We think we are in fact moving fairly aggressively on rates - we have had three rate cuts in three rate meetings. In the last meeting the board confirmed its, let's say, intention to consider further rate cuts depending whether the situation develops as per the forecast. Yes, the modality has altered a little. Now we are talking about looking at the necessity of rate cuts at forthcoming meetings. This is basically the modality we used last autumn, when we opted for a precautionary rate hike as inflation accelerated," he said.

There are no grounds yet for a looser monetary policy as Russian economic growth has slowed this year for two main reasons: and external factors, in particular the global economic slowdown.

"The fiscal policy factor is a temporary factor. We really do have effects from the increase in nonoil taxes at the start of the year, and the expenditure of funds received that way his only just beginning to accelerate," Zabotkin said. The Russian economy is growing in line with its potential given the fact budget funds are yet to be spent.

"We know that this spending is materializing. Yes, some of it will probably be carried over to 2020. We very much hope that the government does not try and cram all that deferred spending into the last four months of 2019. On the whole this is a temporary factor and the CBR is not bound to respond accordingly in its own policy," he said.

As for the external factor, this is a far more complex issue. Experts the world over are trying to understand what part of the global economic slowdown is temporary and what will be a permanent change in the potential level of global GDP related deglobalization.

"If you look at government forecasts, at Economic Development Ministry information, then we as the CBR probably work on the assumption that a substantial part of the global economic slowdown is permanent in nature. If we say this is a permanent shock, this generally affects potential, and in this sense attempts to neutralize it with loose monetary policy will in fact create a positive output gap, and transition to an overheating economy and prevention of the inflation spiral," Zabotkin said.