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," Interfax cited Morozov as saying.
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.
The Chairman of the Board of the National Currency Association (NCA), Dmitry Piskulov, speaking with Vestnik Kavkaza, noted that part of the impact of the Fed's rate on the Russian financial system remained, but it concerns only operations with dollars. "They form an interest rate, which may not depend on the dynamics of the US Fed rate, but the indirect effect remains: if, for example, the Fed sharply raises the rate by 2-4%, the cost of foreign exchange resources, will rise as well," he explained.
"If we ask why we managed to completely free ourselves from the impact of the Fed rate, we should assume that this was due to a decrease in lending to Russian banks, especially due to their entry into sanctions lists. Which means that now the market operates with its own dollar resources, located in the country on the accounts of enterprises in Russian banks, received from exports or attracted in currency swap transactions, conversion from rubles," Dmitry Piskulov concluded.
The professor at the department of the stock market and investments at the Higher School of Economics, Alexander Abramov, also noted that the statement about the independence of the Russian credit market from the Fed rate is not entirely true. "It is true in the sense that the formation of the liquidity of the banking system and the credit activity of banks are now predetermined by the peculiarities of the monetary policy of the Ministry of Finance .It's about the ease of receiving payment for state orders, the money then settle on bank accounts - and on the one hand, we have a bank canopy from monetary liquidity, and on the other hand, there is a strict, prohibitive CBR rate, which also affects the credit activity of banks," he said in the first place.
"At the same time, an increase in the Fed's rate, especially if it is combined with a decreasing key rate in Russia, creates 'scissors' that kill the availability of cheap money for Russian banks from abroad. In this sense, the credit activity of banks depends on the Fed's rate to a certain extent, of course, to a lesser extent than from the policies of the Ministry of Finance and the Central Bank," Alexander Abramov predicts.