CEOInterviews.AIRussia Finance Briefing LIVE | Bank of Russia Governor Elvira Nabiullina Holds News Conference

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Elvira Nabiullina0:00

Because, in our view, everyone would lose from raising the target. It is an illusion that this would lower rates. If we raise the target, rates would only increase. Market rates would only increase. Therefore, we believe it is harmful for the economy. Moreover, constant revision, possible revision of the target because you are not achieving it, simply undermines trust in the inflation targeting regime and in monetary policy. Of course, such things must not be risked.

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Moderator0:39

Colleagues, please, Anatoly, last row.

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Anatoly Tsiko0:43

Good afternoon. Tsiko, Anatoly, Izvestia newspaper. How does the regulator assess external factors, including the renewed conflict in the Middle East, in decisions on the key rate? How do they affect your forecasts?

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Elvira Nabiullina1:00

We do consider external factors as important factors that influence our decisions. And, of course, restrictions on shipping affect inflation in Russia through several channels. On the one hand, the rise in global energy prices leads to an increase in export foreign currency revenue and a strengthening of the ruble. This is a disinflationary factor. On the other hand, the longer the supply disruptions through the strait persist, the stronger the pro-inflationary risks in the form of prices for our imports. And, of course, how long this conflict will last. This remains a factor of uncertainty, but I want to say that now we attach less importance to it than, say, 3 months ago. Alexei Borisovich,

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Alexei Borisovich1:51

Yes. Well, the fact that supply disruptions from the Middle East region affect the global economy. Now, probably, this is already indisputable. Even a number of central banks of the largest economies have moved to raise their key rates or are considering such a possibility in the near future.

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Moderator2:16

Thank you. Next question online from Victoria Tyupina, portal banki.ru, Nizhny Novgorod. Victoria, please.

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Victoria Tyupina2:26

Good afternoon. The Central Bank has confirmed several times that the fuel situation could affect inflation and the decision on the rate accordingly, and the ruble exchange rate is tied to these indicators. So how will the rise in gasoline prices affect the national currency exchange rate, and does the Bank of Russia see risks threatening the stability of the ruble? Thank you.

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Elvira Nabiullina2:47

There is no direct relationship between the cost of gasoline and the exchange rate. Yes, a temporary expansion of business imports may somewhat increase demand for foreign currency. However, the scale of such operations is still insignificant when compared with the overall foreign trade turnover, and their impact on the exchange rate will be small.

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Moderator3:14

Colleagues, please, Maria, Filyushina Maria Bitkogan.

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Maria Filyushina3:20

If the withdrawal of production capacities in certain industries, as mentioned in the press release, continues with us, for example, until the end of the year at the same pace, will the Bank of Russia consider raising the rate? Thank you.

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Elvira Nabiullina3:40

We will consider how the situation changes as a whole. Of course, the development of the situation with retiring capacities is a factor in our decision-making, but it is not the only factor influencing our decisions on the key rate. Again, we need to look at the totality, but all else being equal, this will, at any rate, reduce the space for rate cuts.

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Moderator4:12

Colleagues, please, Igor.

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Igor Shimko4:19

Hello, Igor Shumko, media project Igor Shimko. Thank you for your work. I have a methodological question. In October last year, you said that if the inflation target is not achieved and you are forced to raise the key rate, you would have to act with more stringent measures and, accordingly, raise the key rate more radically. We interpret this as having to go above the previous 21%. Are we hearing and interpreting this correctly? And, accordingly, has anything changed since then? Thank you.

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Elvira Nabiullina4:55

Well, look, our updated forecast, we updated the forecast today, it assumes that in order to slow down inflation, the tightness of monetary conditions that we currently have is sufficient. And you know that this policy we are pursuing has led to the fact that over a year and a half, sustainable inflation has decreased from double-digit rates to about 4-5%, more than halved on an annualized basis. It is impossible to completely rule out the possibility of a rate hike. And we always say that. We will pursue the policy necessary to return to low inflation. If circumstances suddenly change and require it, we are ready to raise the rate to the level necessary for that. And I hope that our actions in 2014, and in 2022, and in 2023-2024, they should leave no doubt on this score. But this assumes a completely different scenario than our current baseline, with additional persistent supply-side shocks that permanently reduce our production capabilities. And, accordingly, this will require, if our capabilities are permanently reduced, this will require more restrained demand in the economy both this year and next year. But let me emphasize again, this is not part of our baseline scenario. There is no basis, in our view, to preemptively build in such a development and jerk the rate upward. If such a scenario materializes, we will do what is necessary for price stability.

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Moderator6:57

Colleagues, please, Vadim.

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Vadim Sloguzov7:04

Vadim Sloguzov, Kommersant newspaper. I wanted to clarify about the budget factor. Judging by the release, understanding of fiscal policy has not increased since the last meeting. The same assessments about the more stimulating role of spending, about a structural non-zero deficit. But on the other hand, during this time the Ministry of Finance clearly adjusted the budget for this year. This time non-publicly, without parliament, and you are probably already actively discussing projections for 2027. Will you really make all decisions on this factor only in October, when these parameters will already be publicly known?

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Elvira Nabiullina7:48

Let me explain. I already said that we cannot, we previously assumed a zero deficit balance, as was in the announced budget parameters, but the Ministry of Finance has already announced that most likely until 2028 inclusive there will be none, and we cannot assume a zero balance. Therefore, this time we made our own assessment of the possible trajectory of the budget balance, primary balance, structural budget balance. The actual trajectory may go differently. And the Ministry of Finance now, we know, discussions are underway in the government, it will announce, probably in September, closer to October, maybe even. But we assumed, based on what you said, that this year actual spending is significantly higher than what fits into the initial plans. We assumed this year a primary structural deficit of 2% of GDP, next year 1%, and in 2028 half a percent. Again, these data are our estimate, which will be refined after the government presents its updated forecast. Our baseline forecast currently includes such a trajectory.

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Moderator9:12

Thank you. Next question online from Victoria Shergina, Lo Finance. Victoria, please.

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Victoria Shergina9:20

Hello. I will continue on the budget deficit. As you mentioned, it turned out to be quite large. And recently several auctions of government bonds did not take place on terms acceptable to the Ministry of Finance. Please tell me, if the Ministry of Finance cannot borrow on the market at a rate acceptable to it, where will the money to cover the deficit ultimately come from, and which of the possible options for covering the deficit poses the greatest risk to inflation and citizens' savings? And could a situation arise in which the Bank of Russia is forced to lower the rate not because inflation has sustainably slowed, but because servicing the public debt has become too expensive? How far is Russia from such a scenario? Thank you.

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Elvira Nabiullina10:05

Thank you very much. Well, the tactics of financing the budget deficit are the prerogative of the Ministry of Finance. But I think you will agree that the experience of recent years shows that, firstly, the Ministry of Finance takes a flexible approach to borrowing policy, choosing the tactics of its borrowing policy. The impact of the budget on inflation, to a first approximation, is determined not by the methods of financing the budget deficit, but by the size of the budget deficit. And, of course, in order for us to take into account the budget in terms of its consolidation parameters, we need to have information faster on how the budget deficit will be reduced. And reducing the budget deficit is indeed disinflationary. As for the situation with the costs of servicing the public debt becoming too expensive, no, we do not believe that such a situation could arise. For Russia, such a problem does not exist because we have a sufficiently low level of public debt. This is one of the reasons why public debt must be kept under control and the buildup of public debt must be avoided. Because moderate debt burden is part of responsible financial policy for any borrower, be it the state, corporations, or individuals. We see in the example of other countries with high levels of public debt, and these countries risk facing constraints on the flexibility of their macroeconomic policy. Alexei Borisovich,

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Alexei Borisovich12:06

Well, and simply a lot of time has passed since the 1990s, but in the late 1990s Russia was also in this situation, and it seriously complicated the situation with macroeconomic stability in 1998.

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Moderator12:22

Colleagues, please, Evgeny,

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Evgeny Popov12:27

Good afternoon. Popov Evgeny, Media about Finance Investfyuchi. And I have a question, it's a bit about pain. The stock market recently has fallen quite seriously. And retail investors have experienced pain. And I want to ask, is this some indicator of recession? And in general, the market decline that has occurred recently, does it affect the rate decision? And how much should the market fall so that financial stability really feels that it is unstable? Something like that.

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Elvira Nabiullina13:11

We carefully analyze what is happening in the stock market. It is going through not very easy times, but we have not considered any significant direct impact on the inflation situation and as a factor in our decision-making in this regard. From the point of view of overall financial stability, it seems to me there is no cause for concern. Yes, the stock market is going through a period of volatility. I think a significant part of the problems is related to increased uncertainty about the future financial performance of issuing companies, future dividend policy. But we do not see the need to respond to risks related to financial stability. We simply do not see such risks. Now the circumstances are completely different, and even the dynamics are different, if you compare with periods when some additional measures were needed.

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Moderator14:31

Colleagues, please, Irina.

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Irina Akhmadulina14:43

Neskorin in the hall. Yes. Irina Akhmadulina, channel 'Money Doesn't Sleep'. And we see that companies' capital expenditures on investments have decreased by about 14% year-on-year. And the government also notes that by next year we should enter a new investment cycle. Although with the key rate reduction at the current moment of 14%, many companies still find it very expensive and uncomfortable to continue investment programs. We see that many public issuers are scaling back their investment programs. Accordingly, the question is, how does the Central Bank assess the current conditions, and at what rate is it expected that we will be able to enter a new investment cycle? Thank you.

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Elvira Nabiullina15:26

Indeed, investment activity is restrained, although we have already said that in the second quarter, in our view, it revived somewhat compared to the first quarter. But it would be incorrect to reduce everything to the key rate. Firstly, the desire and willingness to invest is influenced not only by the rate at which borrowed funds are attracted for investments. After all, the main source of investment, both here and in many countries, has been and will be companies' own funds. And besides the availability of financial resources for investment, of course, motivation, incentives to invest, clarity, predictability, and growth prospects are also important. At the same time, we expect investment growth next year. And in fact, even with a slowdown in the growth rate of investment, the volume of investment does not mean that investment has stopped in the country; the volume of investment remains very high. It is over 42 trillion rubles. And if we compare, for example, with 2021, I think it was 21 trillion there. Even if we remove inflation, it is a growth of a quarter. We have reached a fairly high level of investment. This level of investment ensures the development of production capacities. We, by the way, see that credit resources, loans to companies, are growing, and in the first half of the year overall they grew. And a fairly large share of these loans is for long terms, that is, they can be directed to investments if desired.

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Moderator17:25

Colleagues, please, Anastasia.

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Anastasia Savel17:31

Savel, Anastasia, Interfax. Did you consider today at the board of directors such a situation as the attack on warehouse facilities? Do you not think that this could strengthen the supply shock? And do you not see additional pro-inflationary risks in this? And also another question: for the second time, the Central Bank's decision diverges from market expectations. Do you think this is critical, or with such a step of 25 basis points, there is nothing wrong with it?

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Elvira Nabiullina18:04

Regarding the first question, indeed, these are, as you say, supply shocks, but what impact they will have on price growth. Yes, current price growth is possible under the influence of these supply shocks, but for us it is very important whether these supply shocks translate into an increase in the sustainable components of inflation. That is, whether they have such secondary effects that will force us to respond with monetary policy measures. Because not every supply shock requires a response with monetary policy measures. If it is temporary, passing, and its effects are exhausted as these shocks pass and after some time, then monetary policy may and should not, in principle, respond to them. Therefore, sustainable inflation indicators are very important for us. And I already said that, according to our assessment, sustainable inflation indicators remain in the same range as we estimated earlier, in the range of 4-5%. Regarding the second question, well, yes, the majority of analysts, for example, expected the rate to remain unchanged, but if you look, there were also voices for a rate cut. We really assess, make our own assessment of the situation, and updated the baseline forecast. You see in the baseline forecast that, yes, we see further potential for easing monetary policy, but at a slower pace than previously assumed. Alexei Borisovich, would you like to add something?

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Alexei Borisovich19:59

Another important consideration regarding what is happening with production capacities, in order for this not to have long-lasting effects, of course, we must proceed from the fact that this withdrawal of production capacities, production potential, is temporary. That is, that recovery will occur within a foreseeable horizon, as has already been said in general, the baseline forecast assumes that by the end of the year most of the retired capacities will return to normal activity.

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Elvira Nabiullina20:29

Yes, and there may be another consideration why we believe that secondary effects will be limited. Because secondary effects arise when you can pass on costs to prices across a wide range of goods. But in conditions of restrained demand, and especially in light of the data from enterprise monitoring, we saw how enterprises assess the decline in demand, the ability to pass on increased costs to prices, they will, of course, be limited. But we will continue to watch. At the same time, inflation expectations have risen, and we will continue to watch to what extent this will translate into an acceleration of demand. How quickly inflation expectations will fade? Yes, I already gave examples at the beginning of the year when we had, and when VAT increased, inflation expectations rose, as expected, but they began to adjust quite quickly. Now inflation expectations have also risen, naturally. It was impossible for them not to rise. What will be important is how they behave further. And, of course, how the situation develops overall.

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Moderator21:41

Colleagues, please. Margarita.

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Margarita Mordovina21:46

Margarita Mordovina, RBC. Please tell me, how does the Central Bank assess the situation with attacks on warehouses in terms of deterioration and increase in losses in transport insurance, property insurance? Do you see any...

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Elvira Nabiullina22:01

...risks in the labor market? Important factors of uncertainty remain the budget parameters, which I already mentioned. We await their official presentation in September and will refine our forecast after that. A significant part of the new risks is associated with a reduction in production capacities in some industries. If the supply constraint is more prolonged than assumed in the baseline scenario, this could accelerate inflation, including through the reaction of inflation expectations and secondary effects. On the other hand, the situation with temporary withdrawal of production capacities may also have disinflationary effects. If business sentiment and consumer confidence significantly decline under the influence of this factor, we will see a significantly more restrained dynamics of aggregate demand. In conclusion, about our future decisions. Taking into account the new inputs on the budget and likely secondary effects from the recent price increases, a higher trajectory of the key rate is required. Its range for the current year is raised to 14.5-14.6%, for the next year to 10.5-12.5%. Depending on how the situation develops, different scenarios are possible, but in any of them, the Bank of Russia's decisions will be aimed at ensuring inflation returns to 4% on the forecast horizon. Thank you for your attention.

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Moderator23:34

Colleagues, we are ready to answer your questions. Please introduce yourself and state your publication. Danil, please.

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Danil Sytor23:46

Good afternoon. Danil Sytor, TASS agency. Did the Bank of Russia consider a rate hike at the board of directors meeting, and does the cut mean that the Central Bank sees the situation on the fuel market normalizing? Thank you.

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Elvira Nabiullina24:07

We substantively considered two options: keeping the rate and cutting by 0.25. There were isolated proposals for a rate hike, but again, we substantively considered two options. We did analyze how the fuel situation is developing. And first of all, the fuel situation relates to what are called supply shocks. And monetary policy responds to supply shocks if they have pronounced secondary effects, seep into sustainable inflation. And, of course, it depends on the duration of these shocks. What we see, we see that the government is taking measures to stabilize the situation on the fuel market. We, by the way, carefully listened to the reports from representatives of our regional territorial institutions. The situation is different everywhere, but in many regions, according to information from our territorial institutions, the situation is indeed stabilizing. In the baseline scenario, we assume that capacities will be restored gradually by the end of the year.

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Moderator25:26

Thank you, colleagues. Please, Elmira.

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Elmira Musina25:32

Ah, good afternoon. Musina Elmira, RIA Novosti. Elvira Sakhiputna, please tell me, how does the Bank of Russia assess the recently re-imposed EU sanctions? Will they affect the banking sector in any way? And business representatives recently proposed raising the inflation target. Is the Bank of Russia ready to consider this proposal? Thank you.

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Elvira Nabiullina25:58

Well, our banking sector has been living under sanctions for several years, and a significant part of banks are under sanctions. And, in general, all banks that were not under sanctions are prepared for such a development. And we believe that, as in previous periods of several waves of sanctions, everyone will adapt and adjust. Moreover, the banking sector has a fairly large margin of safety and capital, so we do not see any major problems here. As for changing the target, we consider it possible in the future to consider only lowering it. We do not consider raising it, because, in our view, everyone would lose from raising the target. It is an illusion that this would lower rates. If we raise the target, rates would only increase. Market rates would only increase. Therefore, we believe it is harmful for the economy. Moreover, constant revision, possible revision of the target because you are not achieving it, simply undermines trust in the inflation targeting regime and in monetary policy. Of course, such things must not be risked.

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Moderator27:23

Colleagues, please, Anatoly, last row.

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Anatoly Tsiko27:27

Good afternoon. Tsiko Anatoly, Izvestia newspaper. How does the regulator assess external factors, including the renewed conflict in the Middle East, in decisions on the key rate? How do they affect your forecasts?

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Elvira Nabiullina27:45

We do consider external factors as important factors that influence our decisions. And, of course, restrictions on shipping affect inflation in Russia through several channels. On the one hand, the rise in global energy prices leads to an increase in export foreign currency revenue and a strengthening of the ruble. This is a disinflationary factor. On the other hand, the longer the supply disruptions through the strait persist, the stronger the pro-inflationary risks in the form of prices for our imports. And, of course, how long this conflict will last. This remains a factor of uncertainty, but I want to say that now we attach less importance to it than, say, 3 months ago. Alexei Borisovich,

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Alexei Borisovich28:35

Yes. Well, the fact that supply disruptions from the Middle East region affect the global economy. Now, probably, this is already indisputable. Even a number of central banks of the largest economies have moved to raise their key rates or are considering such a possibility in the near future.

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Moderator28:59

Thank you. Next question online from Victoria Tyupina, portal banki.ru. Nizhny Novgorod. Victoria, please.

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Victoria Tyupina29:09

Good afternoon. The Central Bank has confirmed several times that the fuel situation could affect inflation and the decision on the rate accordingly, and the ruble exchange rate is tied to these indicators. So how will the rise in gasoline prices affect the national currency exchange rate, and does the Bank of Russia see risks threatening the stability of the ruble? Thank you.

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Elvira Nabiullina29:31

There is no direct relationship between the cost of gasoline and the exchange rate. Yes, a temporary expansion of business imports may somewhat increase demand for foreign currency. However, the scale of such operations is still insignificant when compared with the overall foreign trade turnover, and their impact on the exchange rate will be small.

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Moderator29:58

Colleagues, please. Maria, Filyushina Maria Bitkogan.

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Maria Filyushina30:03

If the withdrawal of production capacities in certain industries, as mentioned in the press release, continues with us, for example, until the end of the year at the same pace, will the Bank of Russia consider raising the rate? Thank you.

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Elvira Nabiullina30:24

We will consider how the situation changes as a whole. Of course, the development of the situation with retiring capacities is a factor in our decision-making, but it is not the only factor influencing our decisions on the key rate. Again, we need to look at the totality, but all else being equal, this will, at any rate, reduce the space for rate cuts.

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Moderator30:56

Colleagues, please, Igor.

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Igor Shimko31:03

Hello. Igor Shimko, media project Igor Shimko. Thank you for your work. I have a methodological question. In October last year, you said that if the inflation target is not achieved and you are forced to raise the key rate, you would have to act with more stringent measures and, accordingly, raise the key rate more radically. We interpret this as having to go above the previous 21%. Are we hearing and interpreting this correctly? And, accordingly, has anything changed since then? Thank you.

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Elvira Nabiullina31:39

Well, look, our updated forecast, we updated the forecast today, it assumes that in order to slow down inflation, the tightness of monetary conditions that we currently have is sufficient. And you know that this policy we are pursuing has led to the fact that over a year and a half, sustainable inflation has decreased from double-digit rates to about 4-5%, more than halved on an annualized basis. It is impossible to completely rule out the possibility of a rate hike. And we always say that. We will pursue the policy necessary to return to low inflation. If circumstances suddenly change and require it, we are ready to raise the rate to the level necessary for that. And I hope that our actions in 2014, and in 2022, and in 2023-2024, they should leave no doubt on this score. But this assumes a completely different scenario than our current baseline, with additional persistent supply-side shocks that permanently reduce our production capabilities. And, accordingly, this will require, if our capabilities are permanently reduced, this will require more restrained demand in the economy both this year and next year. But let me emphasize again, this is not part of our baseline scenario. There is no basis, in our view, to preemptively build in such a development and jerk the rate upward. If such a scenario materializes, we will do what is necessary for price stability.

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Moderator33:41

Colleagues, please. Vadim,

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Vadim Sloguzov33:48

Vadim Sloguzov, Kommersant newspaper. I wanted to clarify about the budget factor. Judging by the release, understanding of fiscal policy has not increased since the last meeting. The same assessments about the more stimulating role of spending, about a structural non-zero deficit. But on the other hand, during this time the Ministry of Finance clearly adjusted the budget for this year. This time non-publicly, without parliament, and you are probably already actively discussing projections for 2027. Will you really make all decisions on this factor only in October, when these parameters will already be publicly known?

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Elvira Nabiullina34:32

Let me explain. I already said that we cannot, we previously assumed a zero deficit balance, as was in the announced budget parameters, but the Ministry of Finance has already announced that most likely until 2028 inclusive there will be none, and we cannot assume a zero balance. Therefore, this time we made our own assessment of the possible trajectory of the budget balance, primary balance, structural budget balance. The actual trajectory may go differently. And the Ministry of Finance now, we know, discussions are underway in the government, it will announce, probably in September, closer to October, maybe even. But we assumed, based on what you said, that this year actual spending is significantly higher than what fits into the initial plans. We assumed this year a primary structural deficit of 2% of GDP, next year 1%, and in 2028 half a percent. Again, these data are our estimate, which will be refined after the government presents its updated forecast. Our baseline forecast currently includes such a trajectory.

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Moderator35:56

Thank you. Next question online from Victoria Shergina, Lo Finance. Victoria, please.

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Victoria Shergina36:03

Hello. I will continue on the budget deficit. As you mentioned, it turned out to be quite large. And recently several auctions of government bonds did not take place on terms acceptable to the Ministry of Finance. Please tell me, if the Ministry of Finance cannot borrow on the market at a rate acceptable to it, where will the money to cover the deficit ultimately come from, and which of the possible options for covering the deficit poses the greatest risk to inflation and citizens' savings? And could a situation arise in which the Bank of Russia is forced to lower the rate not because inflation has sustainably slowed, but because servicing the public debt has become too expensive? How far is Russia from such a scenario? Thank you.

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Elvira Nabiullina36:49

Thank you very much. Well, the tactics of financing the budget deficit are the prerogative of the Ministry of Finance. But I think you will agree that the experience of recent years shows that, firstly, the Ministry of Finance takes a flexible approach to borrowing policy, choosing the tactics of its borrowing policy. The impact of the budget on inflation, to a first approximation, is determined not by the methods of financing the budget deficit, but by the size of the budget deficit. And, of course, in order for us to take into account the budget in terms of its consolidation parameters, we need to have information faster on how the budget deficit will be reduced. And reducing the budget deficit is indeed disinflationary. As for the situation with the costs of servicing the public debt becoming too expensive, no, we do not believe that such a situation could arise. For Russia, such a problem does not exist because we have a sufficiently low level of public debt. This is one of the reasons why public debt must be kept under control and the buildup of public debt must be avoided. Because moderate debt burden is part of responsible financial policy for any borrower, be it the state, corporations, or individuals. We see in the example of other countries with high levels of public debt, and these countries risk facing constraints on the flexibility of their macroeconomic policy. Alexei Borisovich,

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Alexei Borisovich38:49

Well, and simply a lot of time has passed since the 1990s, but in the late 1990s Russia was also in this situation, and it seriously complicated the situation with macroeconomic stability in 1998.

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Moderator39:06

Colleagues, please, Evgeny,

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Evgeny Popov39:11

Good afternoon. Popov Evgeny, Media about Finance Investfyuchi. And I have a question, it's a bit about pain. The stock market recently has fallen quite seriously. And retail investors have experienced pain. And I want to ask, is this some indicator of recession? And in general, the market decline that has occurred recently, does it affect the rate decision? And how much should the market fall so that financial stability really feels that it is unstable? Something like that.

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Elvira Nabiullina39:55

We carefully analyze what is happening in the stock market. It is going through not very easy times, but we have not considered any significant direct impact on the inflation situation and as a factor in our decision-making in this regard. From the point of view of overall financial stability, it seems to me there is no cause for concern. Yes, the stock market is going through a period of volatility. I think a significant part of the problems is related to increased uncertainty about the future financial performance of issuing companies, future dividend policy. But we do not see the need to respond to risks related to financial stability. We simply do not see such risks. Now the circumstances are completely different, and even the dynamics are different, if you compare with periods when some additional measures were needed.

If you compare it with periods when some additional measures were needed.

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Moderator41:15

Colleagues, please, Irina.

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Irina Akhmadulina41:26

There are several Irinas in the hall. Yes, Irina Akhmadulina, channel 'Money Doesn't Sleep'. And we see that capital expenditures of companies on investments decreased by about 14% year-on-year. And the government also notes that by next year we should enter a new investment cycle. Although with the key rate cut now at 14%, many companies still find it very expensive and uncomfortable to continue investment programs. We see that many public issuers are curtailing their investment programs. Accordingly, the question is how the Central Bank assesses the current conditions and at what rate it expects we can enter a new investment cycle. Thank you.

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Elvira Nabiullina42:10

Indeed, investment activity is restrained, although we already said that in the second quarter, in our opinion, it somewhat revived compared to the first quarter. But it would be incorrect to reduce everything to the key rate. Firstly, the desire and readiness to invest is influenced not only by the level of the rate at which borrowed funds are attracted for investments. After all, the main source of investment, both here and in many countries, was and will be the companies' own funds. And besides the availability of financial resources for investment, of course, motivation, incentives to invest, clarity, predictability and prospects for growth and development are also important. At the same time, we expect investment growth next year. And in fact, yes, even with a slowdown in the growth rate of investment, the volume of investment does not mean that investment in the country has stopped; the volume of investment remains very high. It is more than 42 trillion rubles. And if we compare, for example, with 2021, I think it was 21 trillion. Even if we remove inflation, that is a growth of a quarter. We have reached a fairly high level of investment. This level of investment ensures the development of production capacities. By the way, we also see that the credit resource—loans to companies—are growing, and in the first half overall they grew. And at the same time, a fairly large share of these loans is for long terms, that is, they can be directed to investments if desired.

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Moderator44:09

Colleagues, please. Anastasia.

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Anastasia Savel44:15

Anastasia, Interfax. Did you consider today at the board meeting a situation like an attack on warehouse premises? Don't you think this could intensify the supply shock? And don't you see in this additional pro-inflationary risks? And also another question: for the second time, the Central Bank's decision diverges from market expectations. Do you think this is critical or with a step of 25 basis points there is nothing terrible in it?

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Elvira Nabiullina44:48

Regarding the first question, indeed, as you say, these are supply shocks, but what impact they will have on price growth. Yes, current price growth is possible under the influence of these supply shocks, but for us it is very important whether these supply shocks translate into an increase in the sustainable components of inflation. That is, do they have such secondary effects that will force us to respond with monetary policy measures? Because not every supply shock requires a monetary policy response. If it is temporary, transient, and its effects are exhausted as these shocks pass and after some time, then monetary policy can and, in principle, should not react to them. Therefore, sustainable inflation indicators are very important for us. I already said that in our assessment, sustainable inflation indicators remain in the same range as we estimated before, in the range of 4-5%. As for the second question, well yes, most analysts, for example, expected the rate to remain unchanged, but if you look, there were also voices in favor of a rate cut. We do assess, make our own assessment of the situation, and updated the baseline forecast. You see in the baseline forecast that yes, we see further potential for monetary policy easing, but at a slower pace than previously assumed. Alexievich, do you want to add something?

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Alexei Borisovich46:43

Another important consideration regarding what is happening with production capacities, in order for this not to have long-lasting effects, of course, we must proceed from the fact that this loss of production capacities, production potential, is temporary, that is, recovery will occur within a foreseeable horizon, as has already been said overall, the baseline forecast assumes that by the end of the year the majority of the lost capacities will return to normal operation.

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Elvira Nabiullina47:13

Yes, and there may be another consideration why we believe the secondary effects will be limited, because secondary effects arise when you can pass on costs to prices across a wide range of goods. But in conditions of restrained demand and especially in light of the enterprise monitoring data, we saw how enterprises assess the decline in demand, the ability to pass on increased costs to prices, they will, of course, limit it. But we will watch further. At the same time, inflation expectations have still risen and we will watch further how this will result, may result in an acceleration of demand. How quickly...

U

Unknown47:57

How quickly will inflation expectations fade?

E

Elvira Nabiullina48:02

Yes, I already gave examples earlier this year, when the VAT increase happened, inflation expectations rose, predictably rose, but they began to adjust fairly quickly. Now inflation expectations have also risen, naturally. It was impossible for them not to rise. What will be important is how they behave further. And, of course, how the overall situation will develop.

M

Moderator48:25

Colleagues, please. Margarita.

M

Margarita Mordovina48:30

Margarita Mordovina, RBC. And tell me, please, how does the Central Bank assess the situation of tightness in the labor market?

E

Elvira Nabiullina48:39

Important factors of uncertainty remain the budget parameters, which I already mentioned. We await their official presentation in September and will refine our forecast after that. A significant part of the new risks is associated with a decline in production capacity in some industries. If the supply constraint is more prolonged than assumed in the baseline scenario, this could accelerate inflation, including through the reaction of inflation expectations and secondary effects. On the other hand, the situation with the temporary loss of production capacity may also have disinflationary effects. If business sentiment and consumer confidence significantly decline under the influence of this factor, we will see a significantly more restrained dynamics of aggregate demand. In conclusion, regarding our future decisions. Taking into account the new inputs on the budget and the likely secondary effects from the recent price increase, a higher trajectory of the key rate is required. Its range for the current year has been raised to 14.5-14.6%, for the next year to 10.5-12.5%. Depending on how the situation develops, different scenarios are possible, but in any of them, the Bank of Russia's decisions will be aimed at ensuring the return of inflation to 4% on the forecast horizon. Thank you for your attention.

M

Moderator50:09

Colleagues, we are ready to answer your questions. Please introduce yourself and state your publication. Danil, please.

D

Danil Sytor50:21

Good afternoon. Danil Sytor, TASS agency. Did the Bank of Russia consider a rate increase at the board meeting and does the cut mean that the Central Bank sees the situation on the fuel market normalizing? Thank you.

E

Elvira Nabiullina50:42

We specifically considered two options: keeping the rate and cutting by 0.25. There were isolated proposals to raise the rate, but again, we specifically considered two options. We did analyze how the fuel situation is developing. And first of all, the fuel situation relates to what are called supply shocks. And monetary policy responds to supply shocks if they have pronounced secondary effects, seep into sustainable inflation. And, of course, it depends on the duration of these shocks. What we see, we see how the government is taking measures to stabilize the situation on the fuel market. By the way, we listened carefully to the reports from representatives of our regional territorial offices. The situation is different everywhere, but in many regions, according to our territorial offices, the situation is indeed stabilizing. In the baseline scenario, we assume that capacities will be restored gradually by the end of the year.

M

Moderator52:02

Thank you, colleagues. Please, Elmira.

E

Elmira Musina52:07

Uh, good afternoon. Musina Elmira, RIA Novosti. Elvira Saifullina, tell me, please, how does the Bank of Russia assess the recently re-imposed sanctions by the European Union? Will they affect the banking sector in any way? And business representatives recently proposed raising the inflation target. Is the Bank of Russia ready to consider this proposal? Thank you.

E

Elvira Nabiullina52:33

Well, our banking sector has been living under sanctions for several years, and a significant part of banks is under sanctions. And, in general, all banks that were not under sanctions are prepared for such a development. And we proceed from the fact that, as in previous periods of several waves of sanctions, everyone will adapt and adjust. Moreover, the banking sector has a sufficiently large margin of safety and capital, so we do not see any major problems here. As for changing the target, we consider it possible in the future to consider only lowering it. We do not consider raising it, because in our opinion, everyone would lose from raising the target. It is an illusion that this will lower rates. If we raise the target, rates will only increase. Market rates will only increase. Therefore, we believe this is harmful for the economy. In addition, a constant revision, a possible revision of the target because you are not achieving it, simply undermines confidence in the inflation targeting regime and in monetary policy. Of course, such things must not be risked.

M

Moderator53:58

Colleagues, please, Anatoly, last row.

A

Anatoly Tsiko54:02

Good afternoon. It's Anatoly, Izvestia newspaper. How does the regulator assess external factors, including the renewed conflict in the Middle East, in its decisions on the key rate? How do they affect your forecasts?

E

Elvira Nabiullina54:20

We do consider external factors as important factors that influence our decisions. And, of course, the disruption of shipping affects inflation in Russia through several channels. On the one hand, the rise in world energy prices leads to an increase in export foreign exchange earnings and a strengthening of the ruble. This is a disinflationary factor. On the other hand, the longer the supply disruptions through the strait persist, the stronger the pro-inflationary risks in the form of prices for our imports. And, of course, how long this conflict will last remains a factor of uncertainty, but I want to say that we now attach less importance to it than, say, three months ago. Alexei Borisovich,

A

Alexei Borisovich55:10

Yes. And the fact that supply disruptions from the Middle East region affect the global economy is now probably indisputable. Even a number of central banks of the largest economies have moved to raise their key rates or are considering such a possibility in the near future.

M

Moderator55:34

Thank you. The next question is online from Victoria Tyupina, portal banki.ru. Nizhny Novgorod. Victoria, please.

V

Victoria Tyupina55:44

Good afternoon. The Central Bank has repeatedly confirmed that the fuel situation may affect inflation and the decision on the rate accordingly, and the ruble exchange rate is tied to these indicators. So how will the rise in gasoline prices affect the national currency exchange rate and does the Bank of Russia see risks threatening the stability of the ruble? Thank you.

E

Elvira Nabiullina56:06

There is no direct relationship between the price of gasoline and the exchange rate. Yes, a temporary expansion of business imports may somewhat increase the demand for foreign currency. However, so far the scale of such operations is insignificant, if you look and compare with the overall foreign trade turnover, and their impact on the exchange rate will be small.

M

Moderator56:33

Colleagues, please. Maria,

M

Maria Filyushina56:39

Filyushina Maria, Betkogan. If the loss of production capacity in certain industries, which is mentioned in the press release, persists with us, for example, until the end of the year at the same pace, will the Bank of Russia consider raising the rate? Thank you.

E

Elvira Nabiullina56:59

We will consider how the situation changes as a whole. Of course, the development of the situation with the declining capacities is a factor in our decision-making, but it is not the only factor that influences our decisions on the key rate. Once again, it is necessary to look at the totality, but other things being equal, this will, of course, reduce, at any rate, the space for lowering the rate.

M

Moderator57:31

Colleagues, please. Igor,

I

Igor Shimko57:38

Hello. Igor Shimko, media project Igor Shimko. Thank you for your work. I have a methodological question. In October last year, you said that if the inflation target was not achieved and you were forced to raise the key rate, you would have to act with tougher measures and, accordingly, raise the key rate more radically. We interpret this as: you will have to go above the previous 21%. Is our interpretation correct? And, accordingly, has anything changed since then? Thank you.

E

Elvira Nabiullina58:14

Well, look, our updated forecast, we updated the forecast today, it assumes that in order to slow down inflation, the tightness of the monetary conditions that we currently have is sufficient. And you know that this policy we are pursuing has led to the fact that over a year and a half, sustainable inflation has decreased from double-digit rates to 4-5%, more than halved in annual terms. It is impossible to completely rule out the possibility of raising the rate. And we always say this. We will pursue the policy necessary to return to low inflation. If circumstances suddenly change and require it, we are ready to raise the rate to the level necessary for that. And I hope that our actions in 2014, and in 2022, and in 2023-2024, should leave no doubt on this score. But this assumes a completely different scenario than our current baseline, with additional prolonged shocks on the supply side that permanently reduce our production capabilities. And, accordingly, this would require more restrained demand in the economy this year and next. But I emphasize again, this is not part of our baseline scenario. There is no basis, in our opinion, to preemptively bet on such a development and preemptively jerk the rate up. If such a scenario materializes, we will do what is necessary for price stability.

M

Moderator1:00:16

Colleagues, please. Vadim.

V

Vadim Sloguzov1:00:23

Vadim Sloguzov, Kommersant newspaper. I wanted to clarify about the budget factor. Judging by the release, understanding of budget policy has not increased since the last meeting. The same assessments of a more stimulating role of spending, of a structural non-zero deficit. But on the other hand, during this time the Ministry of Finance has clearly adjusted this year's budget. This time non-publicly, without parliament, and you are probably already actively discussing the projections for 2027. Will you really make all decisions on this factor only in October, when it will already be common knowledge? All these parameters.

E

Elvira Nabiullina1:01:07

Let me explain. I already said that we cannot, we previously laid in a zero deficit balance, as was in the announced budget parameters, but the Ministry of Finance has already stated that it will most likely not be zero until 2028 inclusive, and we cannot lay in a zero balance. So this time we made our own assessment of the possible trajectory of the budget balance, primary balance, structural budget balance. The actual trajectory may be different. And the Ministry of Finance is currently, we know, discussions are going on in the government, it will be announced, most likely in September, closer to October, maybe even later. But we have assumed, based on what you are talking about, that this year actual spending is significantly higher than originally planned. We have assumed this year a primary structural deficit of 2% of GDP, next year 1%, and in 2028 half a percent. Again, these data are our assessment, which will be refined after the government presents updated forecasts. So our baseline forecast currently includes such a trajectory.

M

Moderator1:02:31

Thank you. And the next question online from Victoria Shergina, Lo Finance. Victoria, please.

V

Victoria Shergina1:02:39

Hello. I will continue about the budget deficit. As you mentioned, it turned out to be quite large. And recently several auctions of government bonds did not take place on terms acceptable to the Ministry of Finance. Tell me, please, if the Ministry of Finance cannot borrow on the market at a rate acceptable to it, where will the money to cover the deficit come from in the end, and which of the possible ways to cover the deficit poses the greatest risk to inflation and to citizens' savings? And could a situation arise in which the Bank of Russia would be forced to lower the rate not because inflation has sustainably slowed, but because servicing the public debt has become too expensive? How far is Russia from such a scenario? Thank you.

E

Elvira Nabiullina1:03:24

Thank you very much. Well, the tactics of financing the budget deficit are the prerogative of the Ministry of Finance. But I think you will agree that the experience of recent years shows that, firstly, the Ministry of Finance flexibly approaches its borrowing policy and chooses its tactics. The impact of the budget on inflation in the first approximation is determined not by the methods of financing the budget deficit, but by the size of the budget deficit. And, of course, in order for us to take the budget into account from the point of view of its consolidation parameters, we need to have information faster on how the budget deficit will be reduced. And the reduction of the budget deficit is indeed disinflationary. As for the situation with the cost of servicing the public debt becoming too expensive, no, we do not believe that such a situation can arise. For Russia, such a problem does not exist because we have a fairly low level of public debt. This is one of the reasons why public debt must be kept under control and an increase in public debt must be avoided. Because a moderate debt burden is part of responsible financial policy for any borrower, whether it is the state, corporations or individuals. We see from the example of other countries with a high level of public debt. And these countries risk facing a limitation of flexibility for their macroeconomic policy. Alexei Borisovich,

A

Alexei Borisovich1:05:25

Well, and simply a lot of time has passed since the 1990s, but in the late 1990s Russia was in this situation, and it seriously complicated the situation with macroeconomic stability in 1998.

M

Moderator1:05:41

Colleagues, please, Evgeny,

E

Evgeny Popov1:05:46

Good afternoon. Popov Evgeny, media about finance, Investfuchi. And I have this question, it's a little bit about pain. The stock market has recently fallen quite seriously. And retail investors have been in pain. And I want to ask, is this some indicator of a recession? And in general, does the market decline affect the rate decision? And how much does the market have to fall so that financial stability really feels that it is unstable? Something like that.

E

Elvira Nabiullina1:06:30

We carefully analyze what is happening on the stock market. It is going through not very easy times, but we did not consider it as a direct significant influence on the situation with inflation and as a factor in our decision-making. In terms of overall financial stability, it seems to me there is no cause for concern. Yes, the stock market is going through a period of volatility. I think a significant part of the problems is related to increased uncertainty about the future financial performance of issuing companies and future dividend policy. But we do not see a need to respond to risks associated with financial stability. We simply do not see such risks. Now the circumstances are completely different and even the dynamics are different if you compare it with periods when some additional measures were needed.

M

Moderator1:07:50

Colleagues, please, Irina.

I

Irina Akhmadulina1:08:01

There are several Irinas in the hall. Yes, Irina Akhmadulina, channel 'Money Doesn't Sleep'. And we see that capital expenditures of companies on investments decreased by about 14% year-on-year. And the government also notes that by next year we should enter a new investment cycle. Although with the key rate cut now at 14%, many companies still find it very expensive and uncomfortable to continue investment programs. We see that many public issuers are curtailing their investment programs. Accordingly, the question is how the Central Bank assesses the current conditions and at what rate it expects we can enter a new investment cycle. Thank you.

E

Elvira Nabiullina1:08:45

Indeed, investment activity is restrained, although we already said that in the second quarter, in our opinion, it somewhat revived compared to the first quarter. But it would be incorrect to reduce everything to the key rate. Firstly, the desire and readiness to invest is influenced not only by the level of the rate at which borrowed funds are attracted for investments. After all, the main source of investment, both here and in many countries, was and will be the companies' own funds. And besides the availability of financial resources for investment, of course, motivation, incentives to invest, clarity, predictability and prospects for growth and development are also important. At the same time, we expect investment growth next year. And in fact, yes, even with a slowdown in the growth rate of investment, the volume of investment does not mean that investment in the country has stopped; the volume of investment remains very high. It is more than 42 trillion rubles. And if we compare, for example, with 2021, I think it was 21 trillion. Even if we remove inflation, that is a growth of a quarter. We have reached a fairly high level of investment. This level of investment ensures the development of production capacities. By the way, we also see that the credit resource—loans to companies—are growing, and in the first half overall they grew. And at the same time, a fairly large share of these loans is for long terms, that is, they can be directed to investments if desired.

M

Moderator1:10:44

Colleagues, please, Anastasia.

A

Anastasia Savel1:10:50

Savel, Anastasia, Interfax. Did you consider today at the board meeting a situation like an attack on warehouse premises? Don't you think this could intensify the supply shock? And don't you see in this additional pro-inflationary risks? And also another question: for the second time, the Central Bank's decision diverges from market expectations. Do you think this is critical or with a step of 25 basis points there is nothing terrible in it?

E

Elvira Nabiullina1:11:23

Regarding the first question, indeed, as you say, these are supply shocks, but what impact they will have on price growth. Yes, current price growth is possible under the influence of these supply shocks, but for us it is very important whether these supply shocks translate into an increase in the sustainable components of inflation. That is, do they have such secondary effects that will force us to respond with monetary policy measures? Because not every supply shock requires a monetary policy response. If it is temporary, transient, and its effects are exhausted as these shocks pass and after some time, then monetary policy can and, in principle, should not react to them. Therefore, sustainable inflation indicators are very important for us. I already said that in our assessment, sustainable inflation indicators remain in the same range as we estimated before, in the range of 4-5%. As for the second question, well yes, most analysts, for example, expected the rate to remain unchanged, but if you look, there were also voices in favor of a rate cut. We do assess, make our own assessment of the situation, and updated the baseline forecast. You see in the baseline forecast that yes, we see further potential for monetary policy easing, but at a slower pace than previously assumed. Alexievich, do you want to add something?

A

Alexei Borisovich1:13:18

Another important consideration regarding what is happening with production capacities, in order for this not to have long-lasting effects, of course, we must proceed from the fact that this loss of production capacities, production potential, is temporary, that is, recovery will occur within a foreseeable horizon, as has already been said overall, the baseline forecast assumes that by the end of the year the majority of the lost capacities will return to normal operation.

E

Elvira Nabiullina1:13:48

Yes, and there may be another consideration why we believe the secondary effects will be limited, because secondary effects arise when you can pass on costs to prices across a wide range of goods. But in conditions of restrained demand and especially in light of the enterprise monitoring data, we saw how enterprises assess the decline in demand, the ability to pass on increased costs to prices, they will, of course, limit it. But we will watch further. At the same time, inflation expectations have still risen and we will watch further how this will result, may result in an acceleration of demand. How quickly,

U

Unknown1:14:32

How quickly will inflation expectations fade?

E

Elvira Nabiullina1:14:34

Yes, I already gave examples earlier this year, when the VAT increase happened, inflation expectations rose, predictably rose, but they began to adjust fairly quickly. Now inflation expectations have also risen, naturally. It was impossible for them not to rise. What will be important is how they behave further. And, of course, how the overall situation will develop.

M

Moderator1:15:00

Colleagues, please, Margarita.

M

Margarita Mordovina1:15:05

Margarita Mordovina, RBC. And tell me, please, how does the Central Bank assess the situation of tightness in the labor market?

E

Elvira Nabiullina1:15:14

Important factors of uncertainty remain the budget parameters, which I already mentioned. We await their official presentation in September and will refine our forecast after that. A significant part of the new risks is associated with a decline in production capacity in some industries. If the supply constraint is more prolonged than assumed in the baseline scenario, this could accelerate inflation, including through the reaction of inflation expectations and secondary effects. On the other hand, the situation with the temporary loss of production capacity may also have disinflationary effects. If business sentiment and consumer confidence significantly decline under the influence of this factor, we will see a significantly more restrained dynamics of aggregate demand. In conclusion, regarding our future decisions. Taking into account the new inputs on the budget and the likely secondary effects from the recent price increase, a higher trajectory of the key rate is required. Its range for the current year has been raised to 14.5-14.6%, for the next year to 10.5-12.5%. Depending on how the situation develops, different scenarios are possible, but in any of them, the Bank of Russia's decisions will be aimed at ensuring the return of inflation to 4% on the forecast horizon. Thank you for your attention.

M

Moderator1:16:44

Colleagues, we are ready to answer your questions. Please introduce yourself and state your publication. Danil, please.

D

Danil Sytor1:16:56

Good afternoon. Danil Sytor, TASS agency. Did the Bank of Russia consider a rate increase at the board meeting and does the cut mean that the Central Bank sees the situation on the fuel market normalizing? Thank you.

E

Elvira Nabiullina1:17:17

We specifically considered two options: keeping the rate and cutting by 0.25. There were isolated proposals to raise the rate, but again, we specifically considered two options. We did analyze how the fuel situation is developing. And first of all, the fuel situation relates to what are called supply shocks. And monetary policy responds to supply shocks if they have pronounced secondary effects, seep into sustainable inflation. And, of course, it depends on the duration of these shocks. What we see, we see how the government is taking measures to stabilize the situation on the fuel market. By the way, we listened carefully to the reports from representatives of our regional territorial offices. The situation is different everywhere, but in many regions, according to our territorial offices, the situation is indeed stabilizing. In the baseline scenario, we assume that capacities will be restored gradually by the end of the year.

M

Moderator1:18:37

Thank you, colleagues. Please, Elmira.

E

Elmira Musina1:18:43

Uh, good afternoon. Musina Elmira, RIA Novosti. Elvira Saifullina, tell me, please, how does the Bank of Russia assess the recently re-imposed sanctions by the European Union? Will they affect the banking sector in any way? And business representatives recently proposed raising the inflation target. Is the Bank of Russia ready to consider this proposal? Thank you.

E

Elvira Nabiullina1:19:08

Well, our banking sector has been living under sanctions for several years, and a significant part of banks is under sanctions. And, in general, all banks that were not under sanctions are prepared for such a development. And we proceed from the fact that, as in previous periods of several waves of sanctions, everyone will adapt and adjust. Moreover, the banking sector has a sufficiently large margin of safety and capital, so we do not see any major problems here. As for changing the target, we consider it possible in the future to consider only lowering it. We do not consider raising it, because in our opinion, everyone would lose from raising the target. It is an illusion that this will lower rates. If we raise the target, rates will only increase. Market rates will only increase. Therefore, we believe this is harmful for the economy. In addition, a constant revision, a possible revision of the target because you are not achieving it, simply undermines confidence in the inflation targeting regime and in monetary policy. Of course, such things must not be risked.

M

Moderator1:20:33

Colleagues, please, Anatoly, last row.

A

Anatoly Tsiko1:20:37

Good afternoon. It's Anatoly, Izvestia newspaper. How does the regulator assess external factors, including the renewed conflict in the Middle East, in its decisions on the key rate? How do they affect your forecasts?

E

Elvira Nabiullina1:20:55

We do consider external factors as important factors that influence our decisions. And, of course, the disruption of shipping affects inflation in Russia through several channels. On the one hand, the rise in world energy prices leads to an increase in export foreign exchange earnings and a strengthening of the ruble. This is a disinflationary factor. On the other hand, the longer the supply disruptions through the strait persist, the stronger the pro-inflationary risks in the form of prices for our imports. And, of course, how long this conflict will last remains a factor of uncertainty, but I want to say that we now attach less importance to it than, say, three months ago. Alexei Borisovich,

A

Alexei Borisovich1:21:45

Yes. And the fact that supply disruptions from the Middle East region affect the global economy is now probably indisputable. Even a number of central banks of the largest economies have moved to raise their key rates or are considering such a possibility in the near future.

Key rates or are thinking about such a possibility in the near future.

M

Moderator1:22:09

Thank you. The next question is online from Victoria Tyupina, portal banki.ru. Nizhny Novgorod. Victoria, please.

V

Victoria Tyupina1:22:19

Good afternoon. The Central Bank has confirmed several times that the fuel situation could affect inflation and the decision on supply accordingly, and the ruble exchange rate is tied to these indicators. So how will the rise in gasoline prices affect the exchange rate of the national currency, and does the Bank of Russia see risks threatening the stability of the ruble? Thank you.

E

Elvira Nabiullina1:22:41

There is no direct relationship between the cost of gasoline and the exchange rate. Yes, a temporary expansion of business imports may somewhat increase the demand for foreign currency. However, the scale of such operations is still insignificant if you look at and compare it with the total foreign trade turnover, and their impact on the exchange rate will be small.

M

Moderator1:23:08

Colleagues, please. Maria...

M

Maria Filyushina1:23:14

Maria Filyushina, Maria Bitkogan. If the withdrawal of production capacities in certain industries, which is mentioned in the press release, remains with us, for example, until the end of the year at the same pace, will the Bank of Russia consider raising the rate? Thank you.

E

Elvira Nabiullina1:23:34

We will consider how the situation changes as a whole. Of course, the development of the situation with retiring capacities is a factor in our decision-making, but it is not the only factor that influences our decisions on the key rate. Again, we need to look at it in aggregate, but all else being equal, this will, at any rate, reduce the space for lowering the rate.

M

Moderator1:24:06

Colleagues, please, Igor.

I

Igor Shimko1:24:13

Hello. Igor Shimko, media project Igor Shimko. Thank you for your work. I have a methodological question. In October of last year, you said that if the inflation target is not met and you are forced to raise the key rate, you would have to act with tougher measures and, accordingly, raise the key rate more radically. We interpret this as having to go above the previous 21%. Are we hearing and interpreting this correctly? And, accordingly, has anything changed since then? Thank you.

E

Elvira Nabiullina1:24:49

Well, look, our updated forecast, we updated the forecast today, it assumes that in order to slow down inflation, the tightness of the monetary conditions that we currently have is sufficient. And you know that this policy we are pursuing has led to the fact that over the past year and a half, sustainable inflation has decreased, well, roughly by half, from double-digit rates to 4-5%, more than halved in annualized terms. It is impossible to completely rule out the possibility of a rate hike. And we always say this. We will pursue the policy that is necessary to return to low inflation. If circumstances suddenly change and require it, we are ready to raise the rate to the level necessary for this. And I hope that our actions in 2014, and in 2022, and in 2023-2024, they should leave no doubt on this score. But this assumes a completely different scenario than our current baseline, with additional prolonged supply-side shocks that permanently reduce our production capabilities. And, accordingly, this will require, if our capabilities are permanently reduced, this will require more restrained demand in the economy both this year and next year. But let me emphasize again, this is not part of our baseline scenario. There are no grounds to preemptively lay in such a course of events and jerk the rate up prematurely. If such a scenario materializes, we will do what is necessary for price stability.

M

Moderator1:26:51

Colleagues, please, Vadim.

V

Vadim Sloguzov1:26:58

Vadim Sloguzov, Kommersant newspaper. I wanted to clarify the budget factor. Judging by the release, understanding of fiscal policy has not increased since the last meeting. The same assessments about the more stimulating role of spending, about the structural non-zero deficit. But on the other hand, during this time the Ministry of Finance clearly adjusted the budget for this year. This time non-publicly, without parliament, and you are probably already actively discussing the projections for 2027. Will you really make all decisions on this factor only in October, when all these parameters will already be publicly known?

E

Elvira Nabiullina1:27:43

Let me explain. I already said that we cannot, we previously assumed a zero deficit balance, as was in the announced budget parameters, but the Ministry of Finance has already announced that it most likely will not be there until 2028 inclusive, and we cannot assume a zero balance. Therefore, this time we made our own assessment of the possible trajectory of the budget balance, the primary balance, the structural budget balance. The actual trajectory may go differently. And the Ministry of Finance now, we know, discussions are underway in the government, they will announce it, well, most likely in September, closer to October, maybe even. But we assumed, based on what you are saying, that this year actual spending is significantly higher than what fits into the initial plans. We assumed a primary structural deficit of 2% of GDP this year, 1% next year, and half a percent in 2028. Again, these data are our assessment, which will be refined after the government presents its updated forecast. Our baseline forecast currently includes exactly this trajectory.

M

Moderator1:29:06

Thank you. And the next question is online from Victoria Shergina, LoН Finance. Victoria, please.

V

Victoria Shergina1:29:14

Hello. I will continue on the budget deficit. As you mentioned, it turned out to be quite large. And recently several auctions of government bonds did not take place on terms acceptable to the Ministry of Finance. Please tell me, if the Ministry of Finance cannot borrow on the market at a rate acceptable to it, where will the money to cover the deficit ultimately come from, and which of the possible options for covering the deficit carries the greatest risk for inflation and for citizens' savings? And could a situation arise in which the Bank of Russia is forced to lower the rate not because inflation has sustainably slowed, but because servicing the public debt has become too expensive? How far is Russia from such a scenario? Thank you.

E

Elvira Nabiullina1:29:59

Thank you very much. Well, the tactics of financing the budget deficit is the prerogative of the Ministry of Finance. But I think you will agree that the experience of recent years shows that, firstly, the Ministry of Finance takes a flexible approach to its borrowing policy and chooses the tactics of its borrowing policy. The impact of the budget on inflation, to a first approximation, is determined not by the methods of financing the budget deficit, but by the size of the budget deficit. And, of course, in order for us to take the budget into account in terms of the parameters of its consolidation, we need to have information faster on how the budget deficit will be reduced. And reducing the budget deficit is indeed disinflationary. As for the situation with the costs of servicing the public debt becoming too expensive. No, we do not believe that such a situation can arise. For Russia, such a problem does not exist because we have a fairly low level of public debt. This is one of the reasons why public debt must be kept under control, and an increase in public debt must be avoided. Because a moderate debt burden is part of a responsible financial policy for any borrower, be it the state, corporations, or individuals. We see examples of other countries with a high level of public debt. And these countries risk facing a limitation of flexibility for their macroeconomic policy.

M

Moderator1:31:58

Alexei Borisovich,

A

Alexei Borisovich1:32:00

Well, a lot of time has passed since the 1990s, but in the late 1990s, Russia was also in this situation, and it seriously complicated the situation with macroeconomic stability in 1998.

M

Moderator1:32:16

Colleagues, please, Evgeny,

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Evgeny Popov1:32:21

Good afternoon. Evgeny Popov, Media about Finance Investfuture. And I have a question, it's a bit about pain. The stock market has fallen quite seriously lately. And retail investors have experienced pain. And I want to ask, is this some kind of indicator of a recession? And in general, does the fall in the market that has occurred recently affect the rate decision? And how much should the market fall for financial stability to really feel that it is unstable? Something like that.

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Elvira Nabiullina1:33:05

We carefully analyze what is happening in the stock market. It is going through not very easy times, but we do not consider it to have any significant direct impact on the inflation situation and as a factor in our decision-making in this part. From the point of view of overall financial stability, it seems to me there is no cause for concern here. Yes, the stock market is going through a period of volatility. I think a significant part of the problems is related to the increased uncertainty regarding the future financial performance of issuing companies and future dividend policy. But we do not see the need to respond to risks related to financial stability. We simply do not see such risks. The circumstances are completely different now, and even the dynamics are different, if you compare it with periods when some additional measures were necessary.

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Moderator1:34:25

Colleagues, please, Irina.

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Irina Akhmadulina1:34:36

Neskorin in the hall. Yes. Irina Akhmadulina, channel 'Money Doesn't Sleep'. We see that companies' capital expenditures on investments have decreased by about 14% year-on-year. And the government also notes that by next year we should enter a new investment cycle. Although with the key rate reduction at the current moment of 14%, many companies still find it very expensive and uncomfortable to continue investment programs. We see that many public issuers are scaling back their investment programs. Accordingly, the question is, how does the Central Bank assess the current conditions, and at what rate is it expected that we will be able to enter a new investment cycle? Thank you.

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Elvira Nabiullina1:35:20

Indeed, investment activity is restrained, although we have already said that in the second quarter, in our opinion, it revived somewhat compared to the first quarter. But it would be incorrect to reduce everything to the key rate. Firstly, the desire and willingness to invest is influenced not only by the level of the rate at which borrowed funds are attracted for investments. After all, the main source of investments, both for us and in many countries, has been and will be the companies' own funds. And besides the availability of financial resources for investment, of course, motivation, incentives to invest, clarity, predictability, and prospects for growth and development are also important. At the same time, we expect investment growth next year. And in fact, yes, even with a slowdown in the growth rate of investment, the volume of investment does not mean that investment in the country has stopped; the volume of investment remains very high. It is over 42 trillion rubles. And if you compare, for example, with 2021, I think it was 21 trillion there. Even if you remove inflation, it is a growth of a quarter. We have reached a fairly high level of investment. This level of investment ensures the development of production capacities. We, by the way, see that credit resources, loans to companies, are growing, and in the first half of the year overall they grew. And at the same time, a fairly large share of these loans is for long terms, that is, they can be directed towards investments if desired.

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Moderator1:37:19

Colleagues, please, Anastasia.

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Anastasia Savel1:37:25

Anastasia Savel, Interfax. Did you consider today at the board of directors the situation of the attack on warehouse facilities? Do you think this could amplify the supply shock? And do you also see additional pro-inflationary risks in this? And another question: for the second time, the Central Bank's decision diverges from market expectations. Do you think this is critical, or with such a step of 25 basis points, there is nothing wrong with it?

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Elvira Nabiullina1:37:58

Regarding the first question, indeed, these are, as you say, supply shocks, but what impact will they have on price growth? Yes, current price growth is possible under the influence of these supply shocks, but for us, it is very important whether these supply shocks translate into an increase in the sustainable components of inflation. That is, do they have such secondary effects that will force us to respond with monetary policy measures? Because not every supply shock requires a response with monetary policy measures. If it is temporary, passing, and its effects are exhausted as these shocks pass and after some time, then monetary policy may and, in principle, should not react to them. Therefore, sustainable inflation indicators are very important for us. I already said that, according to our assessment, sustainable inflation indicators remain in the same range where we assessed them before, in the range of 4-5%. Regarding the second question, well, yes, the majority of analysts, for example, expected the rate to remain unchanged, but if you look, there were also voices in favor of a rate cut. We really assess, make our own assessment of the situation, and updated the baseline forecast. You see in the baseline forecast that, yes, we see further potential for easing monetary policy, but at a slower pace than previously assumed. Alexei Borisovich, do you want to add something?

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Alexei Borisovich1:39:53

Another important consideration regarding what is happening with production capacities, in order for this not to have long-lasting effects, of course, we must proceed from the fact that this withdrawal of production capacities, production potential, is temporary, that is, that recovery will occur in the foreseeable future, as already mentioned, the baseline forecast generally assumes that by the end of the year, most of the retired capacities will return to normal activity.

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Elvira Nabiullina1:40:23

Yes, and maybe one more consideration, why we believe that the secondary effects will be limited. Because secondary effects arise when you can pass on costs to prices across a wide range of goods. But in conditions of restrained demand, and especially in light of the data from enterprise monitoring, we saw how enterprises assess the decline in demand, the ability to pass on increased costs to prices, they will, of course, limit it, but we will watch further. At the same time, inflation expectations have risen, and we will watch further to see how much this translates into an acceleration of demand. How quickly will inflation expectations fade? Yes, I already gave examples at the beginning of the year. We really had, when the VAT increase happened, inflation expectations rose, predictably, but they began to adjust quite quickly. Now inflation expectations have also risen, naturally. It was impossible for them not to rise. What will be important is how they behave further. And, of course, how the situation develops overall.

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Moderator1:41:35

Colleagues, please. Margarita.

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Margarita Mordovina1:41:40

Margarita Mordovina, RBC. Please tell me, how does the Central Bank assess the tension in the labor market?

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Elvira Nabiullina1:41:49

An important factor of uncertainty remains the budget parameters, which I already mentioned. We are waiting for their official presentation in September and will refine our forecast after that. A significant part of the new risks is associated with a decrease in the production capabilities of some industries. If the supply constraint is longer than assumed in the baseline scenario, this could accelerate inflation, including through the reaction of inflation expectations and secondary effects. On the other hand, the situation with the temporary withdrawal of production capacities may also have disinflationary effects. If business sentiment and consumer confidence significantly decline under the influence of this factor, we will see a significantly more restrained dynamics of aggregate demand. In conclusion, about our future decisions. Taking into account the new inputs on the budget and the likely secondary effects from the recent price increases, a higher trajectory of the key rate is required. Its range for the current year is raised to 14.5-14.6%, for the next year to 10.5-11.5%. Depending on how the situation develops, different scenarios are possible, but in any of them, the decisions of the Bank of Russia will be aimed at ensuring inflation returns to 4% on the forecast horizon. Thank you for your attention.

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Moderator1:43:19

Colleagues. We are ready to answer your questions. Please introduce yourself and state your publication. Danil, please.

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Danil Sytor1:43:31

Good afternoon. Danil Sytor, TASS news agency. Did the Bank of Russia consider a rate hike at the board of directors meeting, and does the rate cut mean that the Central Bank sees the situation on the fuel market normalizing? Thank you.

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Elvira Nabiullina1:43:52

We substantively considered two options for the decision: keeping the rate and cutting it by 0.25. There were isolated proposals for a rate hike as well, but again, we substantively considered two options. We really analyzed how the fuel situation is developing. And first of all, the fuel situation relates to what are called supply shocks. And monetary policy responds to supply shocks in the event that they have pronounced secondary effects, seep into sustainable inflation. And, of course, it depends on the duration of these shocks. What we see, we see how the government is taking measures to stabilize the situation on the fuel market. We, by the way, listened carefully to the report from the representatives of our regional branches. The situation is different everywhere, but in many regions, according to information from our territorial branches, the situation is indeed stabilizing. In the baseline scenario, we assume that capacities will be restored gradually by the end of the year.

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Moderator1:45:12

Thank you, colleagues. Please, Elmira.

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Elmira Musina1:45:18

Good afternoon. Elmira Musina, RIA Novosti. Elvira Sakhipzadovna, please tell me, how does the Bank of Russia assess the recently re-imposed EU sanctions? Will they affect the banking sector in any way? And business representatives recently proposed raising the inflation target. Is the Bank of Russia ready to consider this proposal? Thank you.

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Elvira Nabiullina1:45:43

Well, our banking sector has been living under sanctions for several years now, and a significant part of the banks are under sanctions. And, in general, all banks that were not under sanctions are ready for such a development of the situation. And we proceed from the fact that, as in previous periods of several waves of sanctions, everyone will adapt and adjust to it. Moreover, the banking sector has a fairly large margin of safety and capital, so we do not see any big problems here. As for changing the target, we consider it possible in the future to consider only lowering it. We do not consider raising it, because, in our opinion, everyone would lose from raising the target. It is an illusion that this would lower rates. If we raise the target, rates will only go up. Market rates will only go up. Therefore, we believe this is harmful for the economy. Furthermore, constant revision, the possible revision of the target because you are not achieving it, simply undermines confidence in the inflation targeting regime and in monetary policy. Of course, such things must not be risked under any circumstances.

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Moderator1:47:08

Colleagues, please, Anatoly, last row.

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Anatoly Tsiko1:47:12

Good afternoon. Anatoly Tsiko, Izvestia newspaper. How does the regulator assess external factors, including the renewed conflict in the Middle East, in its decisions on the key rate? How do they affect your forecasts?

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Elvira Nabiullina1:47:30

We really consider external factors as important factors that influence our decisions. And, of course, the disruption of shipping affects inflation in Russia through several channels. On the one hand, the rise in global energy prices leads to an increase in export foreign currency earnings and to a strengthening of the ruble. This is a disinflationary factor. On the other hand, the longer the supply disruptions through the strait persist, the stronger the pro-inflationary risks in the form of prices for our imports. And, of course, how long this conflict will last remains a factor of uncertainty, but I want to say that currently we attach less importance to it than, say, 3 months ago. Alexei Borisovich,

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Alexei Borisovich1:48:20

Yes. And the fact that supply disruptions from the Middle East region affect the global economy. Now, probably, this is already indisputable. Even a number of central banks of the largest economies have moved to raise their key rates or are thinking about such a possibility in the near future.

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Moderator1:48:45

Thank you. The next question is online from Victoria Tyupina, portal banki.ru. Nizhny Novgorod. Victoria, please.

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Victoria Tyupina1:48:54

Good afternoon. The Central Bank has confirmed several times that the fuel situation could affect inflation and the decision on supply accordingly, and the ruble exchange rate is tied to these indicators. So how will the rise in gasoline prices affect the exchange rate of the national currency, and does the Bank of Russia see risks threatening the stability of the ruble? Thank you.

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Elvira Nabiullina1:49:16

There is no direct relationship between the cost of gasoline and the exchange rate. Yes, a temporary expansion of business imports may somewhat increase the demand for foreign currency. However, the scale of such operations is still insignificant if you look at and compare it with the total foreign trade turnover, and their impact on the exchange rate will be small.

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Moderator1:49:43

Colleagues, please. Maria.

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Maria Filyushina1:49:49

Maria Filyushina, Maria Bitkogan. If the withdrawal of production capacities in certain industries, which is mentioned in the press release, remains with us, for example, until the end of the year at the same pace, will the Bank of Russia consider raising the rate? Thank you.

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Elvira Nabiullina1:50:09

We will consider how the situation changes as a whole. Of course, the development of the situation with retiring capacities is a factor in our decision-making, but it is not the only factor that influences our decisions on the key rate. Again, we need to look at it in aggregate, but all else being equal, this will, at any rate, reduce the space for lowering the rate.

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Moderator1:50:41

Colleagues, please, Igor,

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Igor Shimko1:50:48

Hello. Igor Shimko, media project Igor Shimko. Thank you for your work. I have a methodological question. In October of last year, you said that if the inflation target is not met and you are forced to raise the key rate, you would have to act with tougher measures and, accordingly, raise the key rate more radically. We interpret this as having to go above the previous 21%. Are we hearing and interpreting this correctly? And, accordingly, has anything changed since then? Thank you.

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Elvira Nabiullina1:51:24

Well, look, our updated forecast, we updated the forecast today, it assumes that in order to slow down inflation, the tightness of the monetary conditions that we currently have is sufficient. And you know that this policy we are pursuing has led to the fact that over the past year and a half, sustainable inflation has decreased, well, roughly by half, from double-digit rates to 4-5%, more than halved in annualized terms. It is impossible to completely rule out the possibility of a rate hike. And we always say this. We will pursue the policy that is necessary to return to low inflation. If circumstances suddenly change and require it, we are ready to raise the rate to the level necessary for this. And I hope that our actions in 2014, and in 2022, and in 2023-2024, they should leave no doubt on this score. But this assumes a completely different scenario than our current baseline, with additional prolonged supply-side shocks that permanently reduce our production capabilities. And, accordingly, this will require, if our capabilities are permanently reduced, this will require more restrained demand in the economy both this year and next year. But let me emphasize again, this is not part of our baseline scenario. There are no grounds to preemptively lay in such a course of events and jerk the rate up prematurely. If such a scenario materializes, we will do what is necessary for price stability.

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Moderator1:53:26

Colleagues, please. Vadim,

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Vadim Sloguzov1:53:33

Vadim Sloguzov, Kommersant newspaper. I wanted to clarify the budget factor. Judging by the release, understanding of fiscal policy has not increased since the last meeting. The same assessments about the more stimulating role of spending, about the structural non-zero deficit. But on the other hand, during this time the Ministry of Finance clearly adjusted the budget for this year. This time non-publicly, without parliament, and you are probably already actively discussing the projections for 2027. Will you really make all decisions on this factor only in October, when all these parameters will already be publicly known?

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Elvira Nabiullina1:54:17

Let me explain. I already said that we cannot, we previously assumed a zero deficit balance, as was in the announced budget parameters, but the Ministry of Finance has already announced that it most likely will not be there until 2028 inclusive, and we cannot assume a zero balance. Therefore, this time we made our own assessment of the possible trajectory of the budget balance, the primary balance, the structural budget balance. The actual trajectory may go differently. And the Ministry of Finance now, we know, discussions are underway in the government, they will announce it, well, most likely in September, closer to October, maybe even. But we assumed, based on what you are saying, that this year actual spending is significantly higher than what fits into the initial plans. We assumed a primary structural deficit of 2% of GDP this year, 1% next year, and half a percent in 2028. Again, these data are our assessment, which will be refined after the government presents its updated forecasts. Our baseline forecast currently includes exactly this trajectory.

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Moderator1:55:41

Thank you. And the next question is online from Victoria Shergina, LoН Finance. Victoria, please.

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Victoria Shergina1:55:49

Hello. I will continue on the budget deficit. As you mentioned, it turned out to be quite large. And recently several auctions of government bonds did not take place on terms acceptable to the Ministry of Finance. Please tell me, if the Ministry of Finance cannot borrow on the market at a rate acceptable to it, where will the money to cover the deficit ultimately come from, and which of the possible options for covering the deficit carries the greatest risk for inflation and for citizens' savings? And could a situation arise in which the Bank of Russia is forced to lower the rate not because inflation has sustainably slowed, but because servicing the public debt has become too expensive? How far is Russia from such a scenario? Thank you.

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Elvira Nabiullina1:56:34

Thank you very much. Well, the tactics of financing the budget deficit is the prerogative of the Ministry of Finance. But I think you will agree that the experience of recent years shows that, firstly, the Ministry of Finance takes a flexible approach to its borrowing policy and chooses the tactics of its borrowing policy. The impact of the budget on inflation, to a first approximation, is determined not by the methods of financing the budget deficit, but by the size of the budget deficit. And, of course, in order for us to take the budget into account in terms of the parameters of its consolidation, we need to have information faster on how the budget deficit will be reduced. And reducing the budget deficit is indeed disinflationary. As for the situation with the costs of servicing the public debt becoming too expensive. No, we do not believe that such a situation can arise. For Russia, such a problem does not exist because we have a fairly low level of public debt. This is one of the reasons why public debt must be kept under control and an increase in public debt must be avoided. Because a moderate debt burden is part of a responsible financial policy for any borrower, be it the state, corporations, or individuals. We see examples of other countries with a high level of public debt, and these countries risk facing a limitation of flexibility for their macroeconomic policy.

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Moderator1:58:33

Alexei Borisovich,

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Alexei Borisovich1:58:35

Well, a lot of time has passed since the 1990s, but in the late 1990s, Russia was also in this situation, and it seriously complicated the situation with macroeconomic stability in 1998.

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Moderator1:58:51

Colleagues, please, Evgeny,

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Evgeny Popov1:58:56

Good afternoon. Evgeny Popov, Media about Finance Investfuture. And I have a question, it's a bit about pain. The stock market has fallen quite seriously lately. And retail investors have experienced pain. And I want to ask, is this some kind of indicator of a recession? And in general, does the fall in the market that has occurred recently affect the rate decision? And how much should the market fall for financial stability to really feel that it is unstable? Something like that.

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Elvira Nabiullina1:59:40

We carefully analyze what is happening in the stock market. It is going through not very easy times, but we do not consider it to have any significant direct impact on the inflation situation and as a factor in our decision-making in this part. From the point of view of overall financial stability, it seems to me there is no cause for concern here. Yes, the stock market is going through a period of volatility. I think a significant part of the problems is related to the increased uncertainty regarding the future financial performance of issuing companies and future dividend policy. But we do not see the need to respond to risks related to financial stability. We simply do not see such risks. The circumstances are completely different now, and even the dynamics are different, if you compare it with periods when some additional measures were necessary.

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Moderator2:01:00

Colleagues, please, Irina.

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Irina Akhmadulina2:01:11

Neskorin in the hall. Yes. Irina Akhmadulina, channel 'Money Doesn't Sleep'. We see that companies' capital expenditures on investments have decreased by about 14% year-on-year. And the government also notes that by next year we should enter a new investment cycle. Although with the key rate reduction at the current moment of 14%, many companies still find it very expensive and uncomfortable to continue investment programs. We see that many public issuers are scaling back their investment programs. Accordingly, the question is, how does the Central Bank assess the current conditions, and at what rate is it expected that we will be able to enter a new investment cycle? Thank you.

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Elvira Nabiullina2:01:55

Indeed, investment activity is restrained, although we have already said that in the second quarter, in our opinion, it revived somewhat compared to the first quarter. But it would be incorrect to reduce everything to the key rate. Firstly, the desire and willingness to invest is influenced not only by the level of the rate at which borrowed funds are attracted for investments. After all, the main source of investments, both for us and in many countries, has been and will be the companies' own funds. And besides the availability of financial resources for investment, of course, motivation, incentives to invest, clarity, predictability, and prospects for growth and development are also important. At the same time, we expect investment growth next year. And in fact, yes, even with a slowdown in the growth rate of investment, the volume of investment does not mean that investment in the country has stopped; the volume of investment remains very high. It is over 42 trillion rubles. And if you compare, for example, with 2021, I think it was 21 trillion.

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