Role of refinancing rate in business activities encouraging is obviously overestimated – FBK Economy Club experts

On 21 May in Moscow a regular meeting of FBK Economy Club was held where a new FBK report of “Bank rates and business activity” was presented.
As Igor Nikolaev, FBK Director of Strategic Analysis Department, explains, frequent claims have been heard of late that monetary and credit policy should be relaxed by reducing the rate of refinancing and “the economy will come to life”. “It is necessary to carry out a “test” survey for the mere reason that the unjustified expectations of a reduced rate for commercial credits, through reducing, as well, the Bank of Russia basic refinancing rates, perceived as nearly the principal mechanism to oppose the incipient economic recession in Russia lead away from search for actually efficient anti-crisis tools. Time is lost” – noted I. Nikolaev. Based on the Rosstat data the experts found that the high commercial credit rate does not belong to the range of factors restricting the industrial growth. Besides, the recent reduction of share of bank credits in the structure of fixed capital investments is also a sign of fading of the significance of this source of business activation.
“Judging by realistic values the role of refinancing rate as the “magic wand” is obviously overestimated, says I. Nikolaev.  - That could be seen from the analysis of correlation dependences between the Bank of Russia basic credit rates and the volumes of given credits”.

Vyacheslav Morgunov, Director of Department for Bank Analysis and Information, spoke highly about the FBK analysis, which according to him, refutes the common statement that everything depends upon the rate of refinancing”. He says that today the refinancing rate plays the signal role for the Bank of Russia and serves as the reference rate for taxation, insurance and other payments. “But if we shift to the field of monetary-credit policy, fighting with inflation an keeping up the country economic growth the role of that rate is infinitesimal”, the expert noted. According to him, it would be more appropriate to be guided by the rate of REPO short-term credits which is 5.5% today. And that is perceptibly lower than the inflation rate. “Central Bank should first of all take care of the rate of inflation. If the inflation goes down that is the best condition for the economic growth”, V. Morgunov emphasized.

Vladimir Gamza, Chairman of Business Financing and Crediting Committee of “Business Russia”, agrees that believing that the reduction of refinancing rate will bring everything to the norm is only a stereotype. The economic policy should be made clear and transparent. “Is the issue of credit so important for businessmen to pay attention to? The rate of refinancing is important where the rate of credit is high. A normal business with the credit turnover not to exceed 50% does not consider the rate of refinancing as a significant factor”, the expert pointed out. At the same time he believes that some conclusions of the analysis are vulnerable: “You should have a clear understanding whether a small portion of credit in business depends upon the possibility to get the credit or upon the high rate”.

Vasiliy Solodkov, Director of HSoE Bank Institute, pointed out to the dual nature of functions of the Bank of Russia, which, on the one hand, is to fight with the inflation and, on the other, is responsible for the rouble rate, which stimulates the inflation at certain moments. “If actual deposit rates become negative now that will result in the inflation”, warned V. Solodkov. The expert also reminded that in the 90-ies the credibility of the whole bank system was radically shattered.  It took a decade to rehabilitate the system.

Roman Kenigzberg, Deputy Director of Bank Audit Department, believes that the problem is not in the rates but in the refinancing transmission mechanism. “If our transmission mechanism does not operate efficiently, i.e., the regulator cannot influence the cost of the final credit to entities through the REPO rate of refinancing rate, maybe we might need indicative rates by means of which the Bank of Russia will give the recommended range of rates for crediting the real sector?” asks the auditor. And continues: “The Bank of Russia has been already marking out the level of rates that do not create increased risks for the banking system. And without these indicators in the pursuit for clients and against the background of uncertainty some banks during the crisis managed to jump beyond 20% of per annum for the deposits”.