Economists criticized the policy of the weak ruble

Photo: Oleg Yakovlev / RBC

The policy of weakening of the ruble could lead to economic growth, but only in the short term – the next year he will slow down. To such conclusion experts of the Ranepa and the Gaidar Institute

With the weakening of the ruble, the Russian economic growth next year will be slower than with a stable level of domestic currency. This is stated in the macroeconomic forecast for 2017-2018 prepared by the economists of the Ranepa, the Gaidar Institute and the Academy of foreign trade under the Ministry of economic development.

Experts have calculated two scenarios, the baseline and the scenario with the lowest rate. In the first case, the nominal exchange rate will be 59.2 per rubles per dollar in 2017 and 57,7 RUB — in 2018, the second of 64.8 rubles and 70 rubles respectively. So, with a stable ruble real effective exchange rate will grow by 6.6% and 5.3% in the next two years. With the weakening of the national currency in 2017 will fall and its real exchange rate (by 2.5%). However, in 2018, high inflation (5.7% as at year-end) will increase it to 3.5%.

A weak ruble will have an impact on economic growth. In 2017, if the currency will be stable, GDP will increase by 1.2% and in 2018 — by 1.8%. At the same time when a weak ruble GDP this year will grow at a higher rate by 1.4%. However, this effect will be exhausted in a year: in 2018, economic growth will be only 1.5%, i.e. 0.3 PP less than in the baseline scenario.

“In other words, the use of low rate of the ruble does not allow, first, to achieve a significant sequential acceleration in economic growth from year to year, and, secondly, starting from the second year of this policy related negative effects will slow down the growth rate of the economy in comparison with the policy of free floating,” indicate the authors of the forecast. Under such effects, they mean the inability to simultaneously provide inflation does not exceed 4%, the low level of the nominal exchange rate and low level of the key rate of the Central Bank, which will have to improve for the benefit of speculative operations. In addition, the trust of the population to the national currency will decrease, which will force citizens to abandon saving behaviours and to invest in currency and consumption.

The dynamics of other macroeconomic indicators in the weakening of the ruble will be similar to the GDP: the first time they will rise, however, in 2018 the situation in comparison with the basic forecast will worsen. In a special way is the case with inflation: with the weakening of the ruble, the Central Bank will have to abandon its target (the controller aims at slowing price growth to 4% and hold it at that level). In 2017, inflation will accelerate to 6.1%, and in 2018 will amount to 5.7%. Thus, the weakening of the national currency will carry “serious reputational risk” for the Central Bank and the economic policy of the country as a whole — the key rate will have to be kept at the level not lower than 12% per annum (currently 9,75%). Real interest rates will also be higher than in the baseline scenario.

“Thus, the scenario with lower exchange rate of the ruble can only provide short-term, within one year, accelerate the pace of economic activity, although this period likely reduced confidence in the ruble and the resumption of dollarization of the economy, rising inflation, high interest rates (both nominal and real) on loans to non-financial sector. Starting from the second year, the dynamics of all macroeconomic indicators in this scenario becomes worse than in a scenario with a floating exchange rate and policy of inflation targeting”, — sums up the experts.

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