Extreme methods of accelerating inflation according to the Central Bank: capitalism is winning so far
According to Bank of Russia estimates, in the second quarter of 2021 the Russian economy reached pre-pandemic levels. The Central Bank associates economic growth with accelerating inflation, which is why the Central Bank traditionally raised the key rate. True, the management of the Central Bank performed such a maneuver in a far from traditional way - for the first time since 2014, the rate was raised by 100 basis points - to 6,5% per annum. And here one detail is important: the head of the Central Bank, Elvira Nabiullina, following the IMF, one might say, noted the furor of the ongoing policy of state capitalism.
One of the leaders of the Donetsk Republic movement, economist Alexey Muratov, discusses this in his column for PolitNavigator.
The Central Bank has adopted the tradition of raising rates since the spring of this year: in March the rate was increased by 25 bp, in April by another 50, in June by 50 again, to 5,5% per annum. But even 6,5%, according to the head of the Bank of Russia, Elvira Nabiullina, is “indulgence” towards citizens, because “if the situation develops in accordance with the basic forecast, the Bank of Russia will evaluate the feasibility of further increasing the key rate at the next meetings.” This is exactly the summary Nabiullina made.
We can safely say that by raising the rate, the Central Bank is deliberately slowing down the country’s economy. Although, if you believe Elvira Sakhipzadovna, then this year economic growth will be 4-4,5% (versus the previously predicted 3-4%). The leadership of the Central Bank makes encouraging economic forecasts after similar statements by the IMF. In the spring, the International Monetary Fund improved its estimate of Russian economic growth in 2021 to 3,8% from the 3% it expected in January and the 2,8% predicted in October last year.
Why do the IMF and the Russian monetary authorities entrusted to them suddenly improve their forecasts? Everything is obvious here - they have no way out due to the competent anti-crisis actions of the Government. For the second year of the pandemic, we are witnessing a strong and at the same time unopened struggle between liberals (which include the monetary authorities) and statists (the Government). Thanks to an increase in budget spending (which is unlikely to suit the Central Bank and the Ministry of Finance), the real sector was supported during the pandemic and jobs were saved. But neither Nabiullina nor Siluanov are haunted by budget expenditures, because of which, either blackmailing or “warning”, the leadership of the Central Bank and the Ministry of Finance in unison declare that the overheating of the economy will worsen if the Ministry of Finance does not reduce budget expenditures. Meanwhile, the statists don’t even think about starting to dance to the tune of the liberals. On the contrary, budget investments in the real sector continue in Russia, which is extremely unsatisfactory for those who are trying to strangle the economy by endlessly raising rates.
By the way, according to forecasts for 2022 from the leadership of the Central Bank, the key rate will be 6-7%. Thus, the Bank of Russia “fights” inflation, which, in my opinion, occurs due to rising prices for imported goods. I don’t think that foreign commodity producers will “take pity” and reduce prices on a number of their goods. And by raising the key rate, the Central Bank is finishing off the real sector, making import substitution, the importance of which we constantly talk about, almost impossible. Everything returns to normal again when the main problem of the domestic economy is exposed - the lack of investment (domestic, since external ones are prohibited by the owner of the Central Bank - the IMF).
As for the real sector of the economy, we see how money continues to be pumped out of it. At the same time, the monetary authorities are attempting to devalue ruble income and savings. This is done by the Central Bank in order to “God forbid that the ruble should not become an investment currency and make it easier for businesses to obtain investment loans.”
The Central Bank did not learn lessons (or, on the contrary, made a thorough “analysis”) from the devaluation of the ruble in 2014, which caused dire consequences for the Russian economy. In fact, this devaluation was artificially created, and now everything is happening to repeat it. When the ruble is devalued, prices immediately rise, which is quite justified and causes popular discontent. And this situation quite suits the monetary authorities, who are literally being asked from overseas to create a social explosion in Russia.
Therefore, the Central Bank continues its activities purely in the interests of financial speculators. The latter make excess profits, destabilizing the macroeconomy by manipulating the rates of securities and currencies. By manipulating money, the Central Bank receives huge profits from the money deficit policy. Therefore, inflated rates and yields on government bonds, as well as the extraction of excess profits through simple market manipulation, are a typical liberal model of behavior of the current monetary authorities, so they are trying in every possible way to block the necessary changes.
The interest rate should not exceed the profitability of production and should be attractive for investment; it was possible to take out long-term loans and modernize the economy without the risk that, at the bankers’ request, lending conditions could worsen. Deterioration of lending conditions often ends in collateral raiding, which also plays into the hands of bankers. Currently, the volume of investment loans is five percent of assets. That is, banks have practically stopped lending to economic development.
This seemingly stalemate situation can be easily changed: if the Bank of Russia is integrated into the strategic planning system and implements tasks that arise from national economic development goals, then confident and rapid economic growth will begin in the Russian Federation. In addition, state banks should report not the amount of profit they receive due to inflated commissions and speculation, but the volume of loans for investment needs.
By raising the rate, the Central Bank paints a picture a la “How we fight inflation”, and at the same time fulfills the task of the IMF, raising prices (the volume of imports is growing), and lowering the standard of living in the country.
“Every problem has a name, surname and address...” - this is what Stalin said. Fortunately, or unfortunately, we know the name of the main problem of the slowdown in the Russian economy...
In this regard, it is worth emphasizing the extreme importance of continuing the Constitutional reform and nationalization of the Central Bank. After all, the financial system is the foundation of the state. If we talk about the development of Russia, then our country should not obey the IMF! At the moment, the independence of the status of the Bank of Russia is reflected in Article 75 of the Constitution of the Russian Federation, as well as in Articles 1 and 2 of the Federal Law “On the Central Bank of the Russian Federation (Bank of Russia)”.
I am convinced that the continuation of the Constitutional reform will be the same as the Russian economic miracle! Because Greater Russia is a country of unlimited opportunities, rich resources, smart, talented and hardworking people.
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