Outlook on the Russian Economy: Aleksey Ulyukaev
RT began by asking about the underlying basis for recent cuts in interest rates.
AU: “Interest rate movement linked with the inflation expectation of the business and households. Now inflation is acceptable in that case, so there is no big devaluation and inflation expectations. If it will continue seriously we will continue with our measures.”
RT: The Central Bank originally planned to free float the Rouble by 2011 but now apparently it could happen sooner. How soon do you see that happening and under what conditions?
AU: “It will depend on several circumstances. First the balance of payments. We have more or less, you know, a moderate balance of payments. No problems with it, possibly down. This is a transmission mechanism. I mean that our interest rates have really been the barometer, the price indicator for all the banks. Now the situation for it is better. And third position is our internal regulation. I mean the system of information, the transparency of our decisions. Because free flow means very much coordinated with the inflation targeting. Inflation targeting is a way of dialogue between the monetary authorities and the society.”
RT: Just recently the Central Bank performed its own stress test of the Russian banking system and found it to be quite resilient but according to some experts the rate of non performing loans could sharply rise in August and September. Do you see that happening?
AU: “Up to the end of the year the ration of non performing loans will soon enough be more than 10 to 12% of the portfolio of Russian banks. Of course there could be some jumps in early fall this year, but not dramatic ones. So frankly I do think that the Russian banking system now is in good shape.”
RT: Speaking at todays plenary session, the Head of VTB, Andrei Kostin, said he views non performing loans as long term investments. Is that the way to look at them in your opinion?
AU: “We have to understand that in the Russian case its absolutely different from other countries. Because now, you know, there is no problem with mortgages and so on in the balance sheets of our banks. This is credits, just credits. Its not securitized installments. And when it comes to credits, that depends on the prospects of recovery in the economy. Its very possible that in some short term perspectives – say 12 or 18 months – the situation will be much better, and it means that these loans will be performing and good performing – so it’s a good investment.”