Another increase in the key rate by the Bank of Russia worsens the conditions for lending to the real sector of the economy, most of whose industries have a profitability below the market interest rate. The regulation of the money market is arranged by the Bank of Russia in such a way that the key rate sets the lower limit for the formation of interest rates in the banking sector and the rate of return in the financial market. When the Central Bank raises the key rate, the rise in the cost of loans and borrowings automatically occurs, which is beneficial to banks and financial speculators, but kills investment and innovation activity in the real sector.
The management of the Bank of Russia motivates the increase in the key rate by the need to fight inflation, counting on a reduction in final demand and a decrease in consumer prices as a result. But this short-term effect is accompanied by a decrease in lending to investments and a decrease in production volumes, which soon turns into an increase in costs and a drop in the technical level of production, and hence a decrease in the competitiveness of the economy. Three years after a significant increase in the key rate, this entails a devaluation of the ruble, which generates another wave of inflation. The current leadership of the Central Bank, in response to this, again inflates the key rate, driving the economy into the next vicious circle of credit contraction – a fall in investment activity – degradation of the technical level – a decrease in competitiveness – devaluation.
The side effects of this policy, implemented on the recommendations of Washington financial institutions, are waves of massive bankruptcies of viable enterprises with each round of key rate hikes, rising unemployment, capital flow from the real economy to the financial sector, and excessive government and corporate spending on servicing bonds. At the same time, sustainable stabilization of the economy is not achieved, since its degradation, as well as the chronic outflow of capital and brains, do not allow achieving sustainable economic growth.
This policy, extremely harmful to economic development and ruinous for the state budget, but super-profitable for the leaders of the banking sector and financial speculators, has been consistently pursued by the current Board of Directors of the Bank of Russia for about a decade. The damage from its holding is about 30 trillion rubles. underproduced GDP, over 15 trillion rubles. unfinished investments, many thousands of bankrupt viable enterprises, falling incomes of the population for more than 7 years. During this disastrous decade through the fault of the Bank of Russia, China more than doubled the volume of production, and the average per capita income of the population exceeded Russia’s. With enormous resources for an economic breakthrough, Russia is being used because of its monetary policy as a donor of capital, brains and natural resources. No national projects can have a serious effect on the development of the economy until the monetary policy is brought into line with the goals of the priority development of the economy set by the President of Russia on the basis of a new technological order. If this is done in accordance with the recommendations of the economists of the Russian Academy of Sciences, then the annual growth rate of Russian GDP could be from 5 to 10%.