This week the Central Bank of Russia cut the refinancing rate by 25 basis points to 7.75%. However, bankers believe it will not help.
The government called for lower interest rates, but bankers, like Herman Gref, CEO of Sberbank want the rates to go up.
The Central Bank of Russia has cut interest rates 14 times since the crisis began.
Surprisingly, that's put the CEO of Russia’s biggest lender head-to-head with the finance minister.
“The current rates are unreasonably low. They don’t reflect the real risks in the economy,” said Herman Gref
Kudrin quickly responded, “I would argue with that!”
Gref added, “But the risks we see in the economy today are considerably higher then in 2006-2008 and at the same time the rates are lower!”
Kudrin countered, “This is because we had a 13% inflation before the crisis and now it stands at 6% and that point also influences the decline of interest rates.”
Gref concluded, “The rates are disproportionately low. I’m ready to prove it with figures. Our banking system is not ready for such rates and many banks will have negative or very low margins.”
Most analysts do not expect a further cut in Russian interest rates this year. With inflation of around 7 per cent expected this year, any further move could mean the banks are paying the consumer to borrow, says Maksim Raskosnov, a Credit Analyst at Renaissance Capital.
“The banks at this stage are really facing the tightest margins they’ve seen in the last five years. So the question is that the funding is now more expensive for the banks then before the crisis, so it would be really unfair to blame the banks that they’re not really keen on decreasing interest rates because they have really done a lot in the last 6 months.”
Manufacturing activity remained subdued this month, according to VTB, evidence of what the Central Bank calls a 'gradual recovery'. It says both lending and the economy remain under threat from turmoil on foreign markets.