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The Russian Central Bank's decision to hold its key policy rate at 14.25% risks triggering bankruptcies and halting investment projects already underway, Shokhin said. Arguments in favor of keeping the rate unchanged include a price shock in the fuel market and growing federal budget expenditures and deficits.
"On the other hand, surveys of RSPP members show a decline in demand — other business associations report similar findings — even as companies continue to carry heavy debt payments," Shokhin said. “So keeping the key policy rate at its current level could create risks of 'autumn bankruptcies' due to the cumulative effect of negative factors in the economy.”
He said the high interest rate poses "significant risks" for import-substitution projects.
"These projects are now in a particularly vulnerable position: the high investment activity of previous years — partly financed through costly borrowed funds — coincided with an economic slowdown," Shokhin added. “Today, these projects face not so much a problem financing procurement and commissioning work, since equipment has already been ordered and often installed and launched, but a lack of orders for finished products.”
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He said a freeze in investment activity in Russia has already become an established fact. "The current uptick in investment spending reflected in official statistics is mostly tied to unplanned repair work for well-understood reasons, not to any economic revival," Shokhin stated. “Companies are taking out loans just to patch holes, not to grow.”
Russia's Central Bank lowered its key policy rate by 25 basis points to 14.25% on June 19. Many experts and business representatives in Russia called the cut insufficient. Sberbank CEO German Gref said Russia's economy is "overcooled" and that high bank rates are exerting "depressive pressure" on it.
The regulator's next scheduled review of the key policy rate is set for July 24.
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Read the original article on The New Voice of Ukraine
Section: Business
Author: Богуслав Романенко
