“I’m waiting for concrete proposals about measures that will help us ensure stable economic growth and safeguard ourselves against negative swings in the world economy, reduce the risks for key industries and stimulate business activity,” Putin said today in Sochi at a meeting of officials and analysts that included Elvira Nabiullina, his economic aide and incoming central bank chief, and Prime Minister Dmitry Medvedev.
While Putin highlighted the impact on Russia of a global slump and “crisis developments in the world financial system,” Economy Minister Andrei Belousov pointed to domestic factors behind the stumbling growth, including high interest rates, fiscal consolidation and a stronger ruble.
Putin is caught between calls to rev up the economy with monetary and fiscal stimulus and the reluctance by the central bank and Finance Ministry to ease policy. Russia’s $2 trillion economy is growing at the weakest pace since a 2009 contraction as Europe’s debt crisis curbed exports and companies cut back investment, prompting the Economy Ministry to lower this year’s growth forecast to 2.4 percent from 3.6 percent. Russia risks sliding into a recession without stimulus, Belousov has warned.
The ruble has lost about 2.6 percent against the dollar in the past month, the worst performance among more than 20 emerging-market currencies tracked by Bloomberg. The Micex Index sank as much as 1 percent and closed down 0.1 percent at 1,336.84 in Moscow, extending last week’s 3.4 percent drop.
Bank Rossii this month took the biggest step toward easing monetary policy since raising all rates in September by cutting some borrowing costs on less frequently used credit instruments. Speaking at today’s meeting, outgoing central bank Chairman Sergey Ignatiev said he saw a continued “declining trend” for interest rates, with the inflation rate remaining a key consideration for policy makers.
The central bank, which is preparing for a transition of leadership in June, wants to keep the pace of price growth between 5 percent and 6 percent this year. Inflation slowed to 7 percent in March from 7.3 percent a month earlier.
The situation in the financial industry is “stable,” with the central bank prepared to use its existing credit mechanisms to provide as much as 2 trillion rubles ($63 billion) in liquidity if needed, Ignatiev said. Russian lending is growing 15 percent to 20 percent in nominal terms, a “normal” pace that’s in line with central bank expectations, Ignatiev said.
High interest rates are contributing to Russia’s “complicated” economic slowdown, according to Belousov, who warned that steps to support growth shouldn’t risk the stability of the budget.
While corporate investment was flat in the first quarter, foreign direct investment grew to $15 billion, excluding the effects of a buyout of energy venture TNK-BP by OAO Rosneft under which BP Plc (BP/) purchased a 19.75 percent stake in the state- owned oil company, Belousov said.
Participants at the meeting, which lasted more than four hours, agreed that rates on loans need to fall, Finance Minister Anton Siluanov said, reiterating plans to borrow 1.2 trillion rubles in 2013.
“We don’t think it makes sense to consider increasing this year’s borrowing,” he said. “It could affect loan rates to the economy.”
While buffeted by lower demand for Russian exports, the economy has a sufficient “margin of safety” to withstand a downturn, Putin said. Real disposable incomes are growing and prices for oil and other commodities remain high, adding to the country’s international reserves and sovereign wealth funds, Putin said.
The government shouldn’t abandon fiscal discipline to revive the economy, Putin said. This year’s budget is the first to use the so-called budget rule, under which federal spending is capped based on long-term oil prices.
“Some are suggesting kickstarting economic growth only by means of budget measures, changing the budget rule for that purpose,” he said. “Yet it’s obvious that budget measures aren’t enough to solve the problem at hand, and changing the budget rule will create certain risks.”
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