## Russian Central Bank: The System Is Stable

_IMF News, December 5, 2017_

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## Bibliographic details
- Published: December 5, 2017

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### Economic rebound and medium-term outlook
- Russia recently rebounded from a two-year recession caused primarily by sanctions and a steep drop in oil prices.
- Growth prospects over the next five years look rather low at 1.5 percent, primarily because private investment in sectors other than oil and gas remains limited.
- The output gap is closing and the economy is getting close to equilibrium.

### Central bank actions and financial-sector reforms
- Bank of Russia introduced Basel III regulations and substantially improved supervision to support medium- and long-term growth.
- Objectives for the financial sector:
  - A financial sector with healthy banks only, leading to increased competition and greater availability of financial resources for the real sector.
  - Improved sustainability of pension funds and insurance companies to provide long-term resources for companies and people.
  - Development of financial infrastructure and domestic bond and equity markets.
- Consumer protection and financial literacy initiatives:
  - An extensive consumer literacy program for different groups of consumers.
  - A new website and a textbook on financial literacy for teachers, written together with the Ministry of Finance.
  - Considering integrating a selection of mathematical tasks on financial issues into basic textbooks to teach children financial literacy through math classes.

### Banking stability, consolidation, and nonperforming loans
- Overall assessment: "the system is stable."
- Recent turbulent period: bad loans increased, and profits and credit growth slowed down; this period appears to have come to an end as the economy and the banking sector are getting healthier.
- Measures to address nonperforming loans and weak institutions:
  - Liquidate or rehabilitate so-called “zombie” banks, which are highly indebted and incur persistent losses; such banks do not finance growth.
  - "Over the last four years, we removed some 350 banks from the market."
  - Close banks involved in money laundering and address private bank owners using banks to finance their businesses or banks with bad business strategies that are insolvent despite superficially correct books.
- Expected outcome: greater trust in a healthier banking sector that takes on a bigger role in financing growth.

### Interest rates, inflation, and implications for growth
- Key figures:
  - The central bank’s key interest rate is the lowest since 2014, and at 3 percent, inflation has fallen below the Bank’s target.
- Inflation dynamics:
  - Decline in inflation was partially explained by one-off factors, such as real exchange rate appreciation and a decline in food prices due to large crops.
  - Inflation expectations remain high, leading the Bank to decrease interest rates slowly.
- Impact on growth:
  - High interest rates do not seem to have had a significant negative effect; macroeconomic stability appears to have helped revive growth and compensated for the negative effects of tight policy.
  - The Bank does not expect growth to speed up significantly when interest rates go down; growth may even stabilize at a somewhat lower level.
  - Structural reforms (improvements in the investment climate and infrastructure) are necessary to achieve a higher potential growth rate.

### International engagement and cooperation
- Russia remains a member country of the IMF and helps finance some lending programs.
- Current interactions with the IMF focus on technical assistance and consultations, including joint work on financial inclusion and pension reform.
- The Bank values the expertise of international financial institutions and seeks to learn from the accumulative experiences of other countries during ongoing economic changes.

*Source: IMF News — Russian Central Bank: The System Is Stable, December 5, 2017*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [2017 Annual Meetings](http://www.imf.org/external/am/2017/)
- [Russia and the IMF](http://www.imf.org/en/Countries/RUS)
- [Five Reforms in Russia to Increase Productivity, Diversify Growth](http://www.imf.org/en/News/Articles/2017/07/05/na070717-russia-five-reforms-to-increase-productivity-diversify-growth)
- [Latest economic outlook for Europe](https://www.imf.org/en/News/Articles/2017/11/09/na111317-europe-engine-for-global-trade)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2017/12/01/na120517-russian-central-bank-the-system-is-stable_