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Tuesday 19.12.2017 | Name days: Sarmis, Lelde

Expert: alongside with the inflation growth, Russia has to consider raising interest rates

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Experts are of the opinion that, alongside with the growing inflation, the Central Bank of Russia should reconsider the option of increasing the interest rates.

«Although the impact of reduced interest rates on the economy was relatively small, its promotion prospects should be considered. It is possible that in October the annual inflation will reach 7 – 7.5%, which is only slightly lower than the refunding rate,» pointed out the Chief Economist of Alfa Bank Natalija Orlova (Natālija Orlova).

«The expectations of interest rate growth in the background of the inflation may cause their increase in bank markets during the following months. In such circumstances the increase of refinancing rates would mean that they are adjusted to the new market conditions,» Orlova emphasizes, adding that during month’s time, the inflation, which was already forgotten, has made itself known again.

According to independent calculations, the volume of this year’s harvest will be about 30 – 40% lower than in other years due to the heat in Augusts; besides, the lack of grain may lead to a drop in the supply of meat and dairy products. The increase in prices does not affect other foodstuff yet; therefore, there is a risk that the inflation will remain high.

It is obvious that the price growth was also caused by the concerns over the Central Bank’s ability to keep the interest rates at a low level. The deceleration of the annual inflation rate within the past year has enabled the drop in refinancing rates, although the effectiveness of lowering rates has proved to be weak, indicates the specialist.

«Those segments that secured the growth of more than half of the gross domestic product (GDP) in the first half of 2010 have reduced the credit volume in the banks. Thus, the reduction of the interest rate, even though it facilitated the growth of credit portfolio, most likely has left a weak effect on the real sector. In addition, in July the growth rate of corporate credit portfolio dropped to nearly zero, while the credit risk of the economy sharply increased. The farmers loss not only mean delayed credit payments in this sector, but can also cause negative multiplicative effect on the financial situation of the mechanical engineering companies,» explained Orlova.


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