Monetary easing won't boost Russian real sector in long term - World Bank
MOSCOW. Feb 26 (Interfax) - Easing of monetary policy by the Central Bank of Russia will probably not result in long-term economic growth for the real sector, Sergei Ulatov, senior economist at the World Bank, told reporters.
"We need investment, we need a more effective labor force. And this is a long-term problem, one that will probably not be solved by monetary stimulus," Ulatov said.
Ulatov said he thought the Central Bank's main task this year would be to vindicate its inflationary targeting policy. "Right now it's very important for the Central Bank to stick to this policy. Inflationary targeting and the transition to a floating exchange rate is their main task for the next two years," he said.
Ulatov said one example was the debate about monetary easing in Japan. He said most experts were inclined to think that these measures would stoke inflation. Demand for imported goods and, possibly currency wars, but would not produced the desired effect in terms of economic growth.
The main problem for the Russian economy is supply, while demand is already high enough, taking very low unemployment into consideration.
"If you look at the Russian economic model, this is fairly strange. It is based on consumption, but there are big restrictions on the part of supply," Ulatov said.
Further stimulation of demand would result in growth for non-tradable sectors, among them services, but supply has to be stimulated in order to change the economic model. "If we think the model needs to be changed, these measures [easing monetary policy] could, apart from short-term benefits, have very bad long-term, negative implications," he said.
Ulatov said the main thing for the Russian economy was the opportunity for long-term growth. "Today the main question for Russia is not what sort of growth we have this year because there'll be growth anyway, but what sort there'll be in five years, that's a far more important question."
There will always be debates between the advocates of short-term and long-term stimulus. "These debates will become stronger because the rate of growth is slowing. The current government certainly has both the economic and political goals of achieving faster growth not tomorrow and not in five years but this year and perhaps next. And clearly they will use all possible tools to stimulate that growth. The question is the extent to which these instruments will work," he said.
