Russia Needs Accelerated Structural Economic Conversion, Says Central Bank Head

Russia Needs Accelerated Structural Economic Conversion, Says Central Bank Head


The situation in the global economy has got worse, said Elvira Nabiullina, the chairwoman of Central Bank of Russia, at the meeting of the relevant committees of the State Duma held the day before.

According to Nabiullina, an accelerated structural reconstruction of the economy is required in Russia, which will be “simply necessary” in the coming years.

“The banking system, despite the fact that it has received the first and most powerful blow, has stood up well to the shocks of this year, and retains the potential for lending, the margin of safety,” said the head of the Central Bank.

As for the development of the Russian economy at this stage, the Central Bank considers three options. The first is a more dynamic formation of new economic relations and accelerated adaptation to the possible limitations. But the other scenario assumes a global crisis, and all the measures to be taken by central banks will not be able to stop inflation. As a consequence, the risks of financial instability will grow, and the rates of regulators will be almost unpredictable, which will increase the cost of debt servicing, but reduce the value of assets. In addition, geopolitical tensions will increase, possibly leading to fragmentation in the global economy.

It should be noted that a possible crisis will be quite comparable with the crisis of 2008-2009. That is, the demand for Russia's main export goods may begin to fall, causing Russia's GDP to shrink even more significantly. As there is exports decline in quantitative and monetary terms, inflation will rise, which, in turn, will cause a weakening of the national currency.

However, Nabiullina responded negatively to the proposal to artificially weaken the ruble rate. “If this policy is applied, both citizens and business will know that the government purposefully weakens the exchange rate, and it may only get weaker. The foreign currency predominance will occur. Accordingly, this will affect all monetary conditions,” she said.

However, the Russian expert community believes that the shocking scenario is unlikely but all risks must be taken into account, above all, in order to change the principle of monetary policy in time, if necessary. The impact of sanctions on our economy should not be underestimated either, as it is not possible to completely fend off restrictions and their consequences at present.

OPEC Secretary General Haissam al-Ghaiz also mentioned the expectation of a recession in the European economy. Moreover, according to his estimation, the U.S. may be heading in this direction as well. By the way, the analysts of the International Energy Agency (IEA) gave similar forecasts.

At a recent economic forum in Washington, experts from the U.S. and Europe called the current global economic environment “chaotic.” During this meeting, economic and political experts named the main pressing problems, including rising inflation, huge interest rates, and panic over the disastrous situation in the energy market.

“The global financial crisis in 2023 will be much bigger than the one in 2008,” said SMS analyst Vladimir Sagalaev. “The apocalypse in the global economy, i.e. no easing of inflation, recession and financial crisis, are all quite possible negative predictable developments.”

Meanwhile, Russian President Vladimir Putin said the day before that the peak of difficulties in our economy against the background of sanctions has already been “passed,” and we “will develop” on a more sovereign and sustainable platform. According to the Russian leader, domestic business “intercepts” the one leaving the Russian Federation in most segments, so that the implementation of a set of measures in Russia to support the economy stabilized inflation and prevented an economic downturn.

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