A draft federal law is to be submitted to the Russian Duma on February 13 by Deputy Speaker Alexander Babakow, MP Nikolai Novitsky and Sergei Mironov, the leader of the “Fair Russia – For the Truth” faction, in order to increase the stability and predictability of the monetary and credit policy in Russia. According to the draft’s justification, which was read by the newspaper Izvestia, the aim is to prevent sharp changes in the interest rate by the Bank of Russia from exerting significant pressure on the financial system and causing shock effects for the economy, particularly for small and medium-sized businesses, mortgage credits and the consumer market, which are most sensitive to changes in credit costs.
The document also notes that the need for the Bank of Russia to adjust drastic changes in the interest rate and to obtain the Duma’s approval will reduce the likelihood of excessive negative effects on the economy. As one of the authors of the draft, Sergei Mironov, told Izvestia in an interview, this proposal was prompted by the central bank’s monetary policy, which often goes against the interests of the Russian economy, in particular through a strong increase in the interest rate, which, according to Mironov, “led to an increase in inflation and a slowdown in economic growth”. Now, the lawmakers want to protect the economy from “shock effects that are particularly painful for small and medium-sized businesses, mortgage credits and investments, for the availability of credit funds for the population and businesses”, emphasized the MP.
The Russian central bank has repeatedly been criticized for its monetary policy and its work oriented towards American standards. In particular, experts have criticized statements by central bank representatives that the Russian economy should not grow too quickly and that the interest rate allegedly influences the inflation rate. The economic editor of the Lenta.ru portal, Maxim Konnov, recently stated:
“The effects of the interest rate on the exchange rates and the price growth are still disputed. Traditionally, it is assumed that an increase in the interest rate damps inflation and strengthens the national currency . However, opponents of this approach remind us that high interest rates under certain conditions can bring the economy into such great difficulties that fewer goods are produced or imported and then sold more expensively, which leads to higher inflation and a devaluation of the currency.”
Just before the interest rate increase from 19 to 21 percent, Sergei Chemezov, the head of the state-owned Rostech conglomerate, made his forecast in the Federation Council. He emphasized that at such a strict interest rate, most of the state-owned companies will inevitably go bankrupt, as the current profitability does not allow them to service their debts and take out new ones:
“If we continue like this, almost the majority of the companies will go bankrupt. Unfortunately, I don’t know of a company with such a profitability – more than 20 percent. Not even the arms trade generates such a profit.”
Today, the interest rate of the central bank is at 21 percent and this is the highest rate in the country’s history, experts note.