Russian central bank governor speaks after cutting interest rates

(Reuters) -Bank of Russia Governor Elvira Nabiullina gave a news conference after the central bank cut its key interest rate by 1.5 percentage points to 8% on Friday.

Nabiullina spoke in Russian. The quotes below were translated by Reuters.

CURRENCY POSITION

“The Bank of Russia sees a positive trend in the process of reducing the value of foreign currency balances in the accounts of the NCC (National Clearing Centre) and the NSD (National Settlement Depository).

“Although we have temporarily introduced regulatory relief on the currency position for banks that are under sanctions … they must have plans to exit that currency position, because we have no intention of extending that regulatory relief beyond Jan 1. 2023.”

BANKING SYSTEM

“Banks have fared better during this crisis period than we expected. At the moment there is no need for a systemic additional capitalisation of the banking sector.”

“I personally thought in the beginning, in February and March, because the shock to the financial sector was of such a magnitude, that despite the previously created buffers, the financial sustainability that had been achieved, a systemic additional capitalisation of banks would be required. We do not see the need for that now.”

“Yes, the owners of certain banks may need assistance to improve the situation. We gradually want to get out of regulatory easing, not all at once but gradually, nevertheless we will do it. We see that the banks are ready for it.”

EXTENDING CURRENCY RESTRICTIONS

“Regarding the extension of restrictions, which we have until Sept. 9: unfortunately we now have no reason to expect that the situation with the flow of foreign currency in cash into the country will change in the near future. The decisions of ‘unfriendly’ countries regarding the ban on cash currency imports to Russia are still in force …

“Therefore, in September we will have to extend the restrictions we imposed at the beginning of March.”

However, Nabiullina said citizens would continue to be permitted to withdraw up to $10,000 from previously opened foreign currency accounts.

BANK DIVIDENDS

“As for dividends … If banks are in good shape and do not take advantage of regulatory easing, they may pay dividends.”

PRICE CAP ON RUSSIAN OIL

“As for geopolitics and a possible price ceiling on oil exports. I don’t even want to speculate now whether this is real or unreal. If it is introduced in one form or another, in my opinion, it will obviously lead to an increase in world prices.

“As far as I understand, we will not supply oil to countries that set this price cap. And our oil, oil products will be reoriented towards the countries that are ready to interact with us.”

CURRENCY INTERVENTIONS

“Our position here is unchanged. We believe that the exchange rate should be floating and we should not switch to a regime of exchange rate targeting.”

“At the same time, we are not rejecting the possibility of currency interventions. They are possible for a floating exchange rate, but within the framework of the budget rule. [Deciding] which instruments – ‘friendly’ currencies or some other instruments – is the government’s prerogative.”

“If the budget rule is introduced this year, of course we are ready to conduct currency operations. We will announce the parameters of these operations only after the decision on the budget rule itself has been made.”

FOOD PRICES

“As for a reduction in food prices in autumn, it is possible. A good harvest is a disinflationary factor … But, within standard seasonality, it is not a factor that affects monetary policy. Because monetary policy responds to persistent factors and food price fluctuations are usually temporary factors.”

ON CURRENT CRISIS

“We compare (this) situation to a pandemic in many ways, but in essence they are two different crises. Because the pandemic crisis could be called a cyclical crisis, when in the beginning there was a shock because of the lockdown, because people could not consume as they had – and we lowered the rate precisely to push up that demand. Demand recovered very quickly, but then supply problems started to emerge and they proved to be longer-lasting. This led to a rise in inflation in the second half of 2021 and the unwinding of inflation expectations.”

“Now the crisis is structural and has largely been catalysed by supply shocks. At the same time, the potential of the economy is decreasing. And a rate cut, even a very large one, would not be able to offset the effects to the same extent as in 2020 …

“For us there are no ‘red lines’ for a rate decision, either from below or above. The rate will be chosen on the basis of a trajectory that should ensure inflation returns to target in 2024.”

KEY RATE

“We had substantive discussions about three options – 8%, 8.5% and 9%”.

“The potential for further rate cuts over the medium term remains and we have shown that in our average key rate forecast, if you look at the trajectory, it is gradually coming down. But everything will depend on the incoming data, the situation is uncertain, there are many multidirectional alternating factors.”

“We will therefore adjust monetary policy so that by 2024 we return to 4% – but of course we will react to all incoming information, to emerging trends.”

DEFLATION

“We don’t see any deflationary trend. Deflation is a steady fall in prices … Annual inflation is still in the double digits.”

“A decrease in prices in certain weeks and months is a common situation in our country. We are usually familiar with the fact that we have lower prices when the prices of fruits and vegetables go down, but this time we had a drop in the general price index in June, and we are staying with this view: a significant price correction after a very significant strong price increase in February and March. But we don’t see any emerging trend of sustained deflation.”

RUSSIAN SUBSIDIARIES OF FOREIGN BANKS

“As for the operation of Russian subsidiaries of foreign banks, permissions to sell them, decisions are taken by a government commission, we participate in it and these decisions will be taken individually each time. But, of course, the attitude towards our Russian companies’ subsidiaries abroad is taken into account here.”

“As for the sale of Russian subsidiaries of foreign banks, if negotiations are under way, you have to get permission from a government commission beforehand anyway. The likelihood of obtaining these approvals is slim, to put it frankly.”

RISK OF GLOBAL RECESSION

“Regarding the risk of global recession, stagnation – indeed, there is such a risk, we take into account that there is such a risk.”

BUDGETARY RULE

“We are now discussing with the government, the Ministry of Finance, a possible mechanism for the budget rule. We support the renewal of the budget rule – of course, it will be modified.”

“In our view, this is an important mechanism that ensures the sustainability of economic parameters, budget parameters, budget expenditures, regardless of what happens with the oil and gas situation. But I would not like to comment on specific parameters before they are officially announced by the Ministry of Finance and the government.”

INFLATION

“In recent weeks, the slowdown in inflation has become more widespread.”

“The main reason for the decline in inflation is a price correction after the jump in March. We still think this is the case.”

ROUBLE

“The significant strengthening of the rouble has had an impact on people’s attitudes towards shopping; people believe current prices are unreasonably high and are waiting for them to fall.”

IMPORTS

“Import dynamics are in line with our expectations: after a significant decline, they are starting to recover.”

(Reporting by Reuters; Editing by Kevin Liffey)