1 Dec 2017 14:12

Impact of FRS, ECB rate hike on Russia small, will be not felt for several years - CB Department Head

MOSCOW. Dec 1 (Interfax) - The impact of rate rises by the Federal Reserve System (FRS) and the European Central Bank (ECB) on the Russian economy and financial market is small due to the maintenance of a large differential between the rates of the two regulators; the impact will not be felt for another several years, the head of the Russian Central Bank's department of research and forecasting Alexander Morozov said.

The department conducted a study which showed that the U.S. FRS rate did not have an impact of the Russian loan market, Morozov said at a financial forum organized by newspaper Vedomosti. He said that only impact on the loan market had been analyzed, but that on the whole, Russia is not completely dependent on the policies of Western regulators.

"The impact of the FRS rate on the Russian loan market has disappeared. The rise of the FRS rate has stopped affecting Russia. We can expect that the loss of correlation between changes to the FRS rate and changes in Russia will continue up till now, while the process of normalizing the policies of the FRS, ECB and Russian Central Bank is being completed. Over the next several years, in theory, we can expect there to be little connection between the actions of the FRS and the actions of the Central Bank," the department chief said.

He said that the possibility of maintaining differences in interest rates between Western and Russian regulators was a positive factor, stabilizing the Russian finance market. "We have already amassed such a significant interest differential before the shock, that it will enable the minimization or reduction, at least, of the impact of international financial markets on the Russian financial market," Morozov said.

He said that in the mid-term, a rate rise of up to 2.75%-3% is expected from the FRS. The Central Bank sees the equilibrium real interest rate in the mid-term at 2.5%, the key rate at 6.5%.

"The move from 8.25% [the current Central Bank key rate] to 6.5% should not cause serious headwinds for financial markets," Morozov said. If there is some trouble, then investors will return to the Russian market as it will still be more attractive than Europe or America in terms of interest rates.