Russia’s central bank is resisting calls to cut interest rates, sparking a “huge argument” with the government over priorities as economic growth slumps, First Deputy Prime Minister Igor Shuvalov said.
Russia needs “easier money” to boost corporate lending, Shuvalov, 46, said in a Jan. 18 interview during a train ride to Moscow from Kaluga. Bank Rossii, the country’s central bank, has room to cut borrowing costs by as much as a percentage point and is resisting as it fights inflation, he said.
Shuvalov, Russia’s top official for economic policy, is amplifying pressure from Cabinet members on the central bank to cut borrowing costs as growth slows to half the government’s 5 percent target. The unprecedented clash is playing out in public, raising the stakes for the successor of central bank Chairman Sergey Ignatiev, whose term expires in June.
“We’re trying to persuade them, always, that now they need to reduce the rate,” Shuvalov said. “And they say, not yet. We think they could.”
Inflation is a priority for the government, which eventually wants to rein in consumer-price growth to less than 4%, Shuvalov said. That would send a positive signal to investors after inflation surged to 6.6% in 2012, faster than the previous year and above the central bank’s target.
Monetary-policy makers left borrowing costs unchanged this month after unexpectedly raising them in September. They removed a phrase from their statement that market rates were acceptable for the “nearest future,” which central bank First Deputy Chairman Alexei Ulyukayev said opens the door for increases or decreases as soon as next month.
President Vladimir Putin will nominate a candidate to replace Ignatiev in March, three months before the current chairman’s third and final term ends, Shuvalov said.
“Mr. Ignatiev was and is a brilliant central bank chairman,” Shuvalov said. “Ignatiev worked quietly and slowly to achieve results.”
The government has been increasingly vocal in its debate with the central bank, with Finance Minister Anton Siluanov and Deputy Economy Minister Andrei Klepach arguing for easier credit last week. Still, the regulator is following its legal obligation to do as it sees fit on questions of interest rates and inflation, Shuvalov said.
“They work completely independently,” he said. “And we argue very often. And they ultimately can say that ‘we work based on our law.’”