Though the focus of this article is on Covid policy, this point is very applicable to other areas, such as foreign policy:
As Covid showed us, an unusually high number of those trotted out to us by our “noble” class as possessing inordinate wisdom are little more than self-interested charlatans. But they retain much of their prominence because many people, having been told again and again that their own observational and reasoning skills are terminally inadequate, hand over those tasks to those presented to them as inordinately wise.
If there is one subliminal message we are sent again and again in the course of our days, it is that almost everything we think or do is measurable, and that by carefully collating all the data relating to these measurements, wise “experts” will give back to us the means to streamline our various life processes, and in this way, bring us to ever greater levels of health and happiness.
This is, to take just one of many examples that could be adduced, the premise behind instruments like the Fitbit. You hand over all of your private bodily data to the experts and they will give you back the outlines of a “data-based” philosophy for living a more healthy and happy life.
Whatever else they do with that personal data—like for example selling it to companies interested in bombarding you with new fears and would-be desires, or conjoining it to other databases in ways that might eventually cause you to not be able to get a decent mortgage rate or affordable health insurance—well, I guess it’s best not to ask.
No, your job is to be a “good kid” who blocks all that out and optimistically fixates on how much healthier and happier that device will make your life.
But have you ever noticed that those same commercial entities are much less interested in talking about the many other types of data they undoubtedly have collected from and about us?
For example, I don’t think I’ve ever read anything about how much extra profit they gain—while effectively robbing us of the same number of hours that we could use to make money, think, or simply relax—by keeping us on hold for hours at a time in the hopes of having a simple query answered, or problem they caused rectified?
Or how many billions they earn by having a poor Filipino or Indian with nothing more than a smattering of English and a script to repeat over and again—as opposed to someone earning a living US wage who is actually trained to resolve problems through dialogue—on the other end of the line?
Or exactly how long they have to keep us on hold to get us fed up enough to end the call in frustration, something which, of course, effectively exonerates them from the need to redress the problems caused by their poor work or poor service?
Or how long it takes you to cease and desist in your desire for a resolution of your problem when wrestling with a stupid AI chatbot that mindlessly runs you through circle after stupid useless circle?
The big holding companies that now control the majority of the services we use and the retail outlets where we buy most of our consumer goods never talk about these things, and needless to say, do not allow the commercial media they effectively control to fixate on these subjects.
And why should they?
Over the last several decades, the BlackRocks and State Streets of the world have steadily lowered the bar in terms of the attention we can expect after turning our money over to them.
During the first years of what I’m sure they surely categorize as a wonderful revolution in efficiency, you could still find a telephone number or two that would lead you to a living breathing human being more or less capable of responding to your needs.
But since the so-called pandemic, even that’s gone.
And I don’t think I’m alone in believing that eliminating the last vestiges of the belief that a merchant has a moral responsibility to back up their products and services was one of the key goals of those who planned this contrived social emergency.
Adding insult to injury is the fact that the governments we sustain with our taxes have gone down the same path, treating the copious information they collect on us as their own private patrimony, erecting barrier after barrier to prevent us, the stupid louts we are, from seeing what they know about the actual results of their brilliant programs, or how they are otherwise spending our money.
Here again, sadly, but also understandably given the day-to-day difficulty of their lives, most people eventually desist in their efforts to get answers to these queries.
And if you are one of the stubborn few who continue to insist on getting reasoned responses, and begin to enlist fellow citizens to your cause, well, they have a solution for that too. They’ll use the media they control to slap a pejorative label on you (racist, populist, anti-vaxxer, it really doesn’t matter which), then send an algorithmically-directed lynch mob your way to execute your social death.
There is a name for a social order of this type. It’s called feudalism.
In the feudalism we learned about in school the lords lived behind thick manor walls that separated them from the serfs in the field. Sure, if a dangerous enemy came along they’d open the gates and let the serfs huddle there until the danger passed.
But in general, most of the traffic went in the other direction; that is, the lord would go out of the gates to take what he wanted from the serfs: their daughters for sex, their sons for soldiering, and of course the fruits of their labors for their well-cladded warehouses within the gates.
And what if the serfs didn’t like this and some of the braver ones got the idea of scaling the walls and taking justice into their own hands?
Well, that’s when the boiling oil and rocks would usually rain down on them from the ramparts.
Today, our lords ostensibly live among us. But it’s not really so.
Over the last three to four decades, and with a special intensity since September 11th, 2001, they have built cyber-barriers that are every bit, if not more, impregnable than the walls that protected their medieval progenitors. And they have actively fomented the idea through their control of the media, that, as wrong as we might feel it to be, there is nothing we can do about it.
And maybe they’re right.
But then again, the first feudalism eventually did end.
How?
When growing numbers of the serfs realized that the threats “out there” that the lord claimed he was protecting them from with his occasional offers of refuge and safety within the walls, were not nearly as bad as he and his noble friends, and their in-house clerics said they were.
And with this realization they began to turn their eyes away from the thick walls that towered over their hovels and toward the horizon leading to the burghs, where one could live much more fully on the basis of his beliefs, skills, and convictions.
Our modern age, undergirded by the idea of linear time and linear progress, has an obvious bias toward doing; that is, toward resolving problems through purposeful, forward-looking actions.
This can obscure the fact that many improvements to our vital circumstance can also be achieved, not by doing more, but by simply ceasing to do many of the counterproductive things we have, out of laziness or unconsciousness, turned into key elements of our daily life.
Of all of these negative habits, perhaps none is more counterproductive than passively accepting the parameters of “reality” as articulated by supposedly wise and benevolent others. There are, of course today, as there were during medieval feudalism, a number of wonderfully wise and benevolent people out there. But in times of cultural disintegration such as our own they tend to be rather few and far between.
As Covid showed us, an unusually high number of those trotted out to us by our “noble” class as possessing inordinate wisdom are little more than self-interested charlatans.
But they retain much of their prominence because many people, having been told again and again that their own observational and reasoning skills are terminally inadequate, hand over those tasks to those presented to them as inordinately wise.
How about if we stop doing that?
If we do, we’ll strengthen ourselves and our fast-fading skills of discernment while depriving the self-interested charlatans of most, if not all, of their remaining aura of respectability.
Ukraine is a mere tool in the hands of the collective West, which has been using it to fight Russia, President Vladimir Putin said on Monday. He made the remarks at a military hospital in Moscow where he was meeting Russian servicemen wounded during the Ukraine military operation.
Asked about the enduring Western support for Kiev, the president said the elites of the collective West were actually the true enemy of Russia, rather than Ukraine itself.
“The point is not that they are helping our enemy, but that they are our enemy. They are solving their own problems with [Ukraine’s] hands, that’s what it’s all about,” Putin stated.
The conflict between Moscow and Kiev was orchestrated by Western elites, who seek to defeat Russia, he suggested. However, the collective West has been unable to achieve its goals, with the failure already showing in the change of its rhetoric on the conflict, the president explained.
Those who only yesterday were talking about the need to inflict a ‘strategic defeat’ on Russia are now looking for words on how to quickly end the conflict.
“We want to end the conflict too, and as quickly as possible, but only on our terms. We have no desire to fight forever, but we are not going to give up our positions either,” Putin said.
The battlefield situation is now changing despite all the aid Kiev has been receiving from the West, the president observed. Russia has been effectively outproducing the whole West militarily, he suggested, with the country’s output destined to grow even further.
“Despite the fact that from time immemorial [the West] has had such a goal – to deal with Russia, it looks like we will deal with them first,” Putin stated.
“You probably see it on the battlefield that they are gradually ‘deflating’. When a shell flies, it is probably difficult to tell whether they are ‘deflated’ or not, but in general you probably know: the situation on the battlefield is changing. And this is happening despite the fact that the entire so-called civilized West is fighting against us,” he told the servicemen.
According to Russia’s latest estimates, over 380,000 Ukrainian troops have been killed or wounded during the conflict. Ukraine has also sustained heavy materiel losses, with an estimated 14,000 tanks and other armored vehicles destroyed. Nearly 160,000 of the troop losses were during Kiev’s botched counteroffensive, launched in early June last year, Moscow says.
***
January 1, 2024
Russian economy is in a ‘structural shift’ – Putin
Western sanctions have forced the country to focus more on manufacturing than energy exports, and the change has been beneficial, according to Russia’s president
The Russian economy is in good shape and is rapidly expanding despite pressure from Western sanctions, President Vladimir Putin said during his visit to Vishnevsky Military Hospital in Moscow on Monday.
The head of state noted that the country’s gross domestic product (GDP) grew 3.5% in 2023, which is a very promising development after the 2.1% contraction it suffered in 2022.
“Our GDP, the key indicator that shows how much our economy has produced… grew 3.5% in 2023. What this tells us is that our economy is functioning steadily. We recuperated our losses and moved forward. This is fundamental,” he stated, noting that while there are still problems facing the economy, like rising inflation, “we’re keeping everything under control.”
Putin noted that this growth stems from changes the country’s economy has gone through over the past year.
“We have never seen anything like that before: while we used to make money from oil and gas [exports], 2023 was the first year when our processing, our manufacturing sector has been growing much faster and generated much more revenue. What we’re witnessing are structural shifts in our economy, and they are very important,” he stated.
The president added that the West’s Ukraine-related sanctions, including Russia’s disconnection from the SWIFT financial messaging system, and the sanctions-induced exit of some large Western companies from the country’s market, have failed to cause lingering harm to Russia’s economic stability.
“The companies that left our market expected the Russian economy to crumble, our businesses and manufacturing to stop running, and thousands of Russians to lose jobs. Our adversaries expected people to take to the streets begging for bread… [but] our economy is stable and our financial system is stable as well,” he stated. Putin noted that unemployment rate in Russia is currently at its historic low of 2.9%, while real household incomes and real disposable income have both substantially increased.
The president also noted that Western departures were beneficial for Russia’s domestic companies.
“Everyone thought that our manufacturing would stop because [the West] stopped supplying components. It didn’t happen. Yes, they created problems, but these problems are being overcome… When certain foreign firms have left, our businesses immediately took over,” Putin said, adding that Russia has enough talent, qualified specialists and managers to “ensure that everything runs smoothly.”
All the business of war, and indeed all the business of life, is to endeavour to find out what you don’t know by what you do; that’s what I called ‘guessing what was at the other side of the hill.’
“Find out what you don’t know by what you do“. It’s not easy, it’s not necessarily pleasant but it’s what you have to do in order to minimise your surprise when whatever it is actually comes over the hill at you.
My advice to all young diplomats and analysts [is that] if you want to understand Mr Putin’s foreign policy, listen to what he’s saying. You won’t like it, but you need to understand it, you need to listen to it. The place to start is the Munich speech in 2007.
“Listen to what he says”. It’s quite easy to. Putin has said a lot and most of it appears on the Presidential website in English as well as the original Russian. Never read what the Western reporters say he says – they almost always distort it – read the original. I’m sure that both Wellington and Bristow would agree.
And that’s what intelligence is all about. Try and understand how the other guy sees things. I have spent the last four decades trying to figure out what’s going on in Russia. I do that by reading what they say and watching what they do and trying to connect the two. Of course you should listen carefully to Putin and other officials, but there’s lot’s more you have to do. A country with a space program like Russia’s probably doesn’t need to steal washing machines for their chips. The West outsourced its manufacturing, Russia didn’t; so Russia can probably make lots of weapons if it has to. Putin has very high levels of support; outsiders probably can’t weaken it. The Russian economy is very self sufficient; sanctions might not have much effect. Russia’s making lots of new infrastructure; it’s not some poor country struggling along. Check these videos out: they’re Google street views of Russian towns ten years apart; the Western media certainly gives you a different impression about life in the Russian boondocks, doesn’t it? Look, listen, think. I’m sure that both Wellington and Bristow would agree.
If you don’t bother, if you blither on about “your values”, the “Rules-Based International Order” and your power and excellence, all you’re doing is looking in the mirror and seeing a slim muscled figure in place of your flabby overweight body. And, sooner or later, you’ll be very sorry because reality will bite you.
I have written many times on this site about bad Western intelligence and the unending stream of nonsense spewed in the West about Putin. Indeed, if there is one big theme of my website it’s that the Western view of Russia and Putin is almost completely false. In a word, Russia is much much stronger, in every way, than the Western establishments thought it was.
Also, over the longer term, Russia does not have the capacity for a long war in the face of economic sanctions. Although Russia can continue to generate revenue from oil and gas exports, it does not have the ability to manufacture advanced weapons or even sufficient materiel to keep the Russian army fielded.
Some are surprised that Russia would escalate matters at this sensitive moment in the conflict when everything is finally beginning to wind down.
The Russian Defense Ministry confirmed on Friday that it launched 50 group strikes and a massive aerial barrage against a wide array of military targets in Ukraine over the past week, including defense industry sites and depots, in what Kiev claimed was the largest such attack during the special operation thus far. This came as the front lines have largely frozen, Western support has dwindled, and leading media like the New York Times are actively debating whether peace talks should finally resume sometime soon.
Some are therefore surprised that Russia would escalate matters at this sensitive moment in the conflict when everything is finally beginning to wind down since its largest aerial barrage thus far could lend credence to those who claim that the West must support Ukraine “for as long as it takes”. The supplementary context within which this unprecedentedly large-scale attack took place helps observers better understand why Russia carried it out and what messages it sought to send by doing so.
For starters, Russia acknowledged that Ukraine damaged one of its landing ships in eastern Crimea earlier this week, which some suspect was caused by Kiev being in control of British Storm Shadow air-to-surface cruise missiles with a longer distance than previously reported. It was therefore important for Russia to respond to this escalation by its rivals in an overwhelming way in an attempt to deter them from other forthcoming ones whether with those same missiles or through whatever other means.
Second, Zelensky had recently ordered his forces to fortify the entire front after the failure of this summer’s counteroffensive, so Russia likely wanted to signal that no amount of trenches and other obstacles can impede the pace of its special operation as the Kremlin prepares for a possible offensive. Any slowdown on Russia’s side could be misinterpreted by its rivals as weakness and a willingness to freeze the conflict along the Line of Contact in spite of its three primary goals having yet to be achieved.
These are demilitarizing Ukraine, denazifying it, and restoring that country’s constitutional neutrality, which President Putin recently reaffirmed that he’d like to achieve via diplomatic means but that he won’t shy away from continuing to pursue them via military ones if that isn’t possible. He also candidly admitted during the same event that he used to be naïve about the West. Taken together, these statements form the third message that he wanted to send, namely that he isn’t a pushover.
If the front lines remained largely frozen and Russia didn’t step up its aerial assaults even if its landing ship hadn’t just been damaged, then his aforesaid admission wouldn’t have been believed by the public, who might suspect that he was lying to cover up for speculatively impending concessions for peace. These latest strikes therefore served to bolster his credibility at home in parallel with showing the West that he’s indeed serious about achieving his three primary goals one way or another no matter what.
The fourth message is that Russia wants Ukrainians to further doubt the wisdom of Zelensky’s new conscription drive and messianic delusions of maximum victory, the latter of which were disclosed in Time Magazine’s cover story last fall citing an unnamed senior aide, and thus divide society. He’s desperately trying to eschew responsibility for the counteroffensive’s failure that led to this unpopular drive, which is exacerbating preexisting tensions between him and his rivals, especially Zaluzhny.
So serious are these tensions that an expert from powerful the Atlantic Council think tank recently called on Zelensky to form a “government of national unity” in order to mitigate “justifiable public anger toward the authorities” that risks undermining his rule even more than it already has been. By showing Ukrainians that it can still strike wherever it wants at will and at an unprecedented scale in spite of their side digging in, Russia wants to encourage them and their elite to rise up against him to stop the conflict.
Finally, the last message that Russia sent through its largest aerial barrage so far is that it’s winning the “race of logistics”/“war of attrition” by such a wide margin that nothing that the West could realistically send Ukraine in the coming future will change these dynamics. Japan’s export of Patriot air defense systems to the US, which will allow the US to replace its own that it plans to then send to Ukraine, won’t make a difference, nor will whatever else the West and its vassals end up giving that country next year.
The very fact that Russia could launch such an attack 22 months into the conflict after all the air defenses that its rivals have already given Ukraine is the most compelling proof yet of its victory over NATO in the abovementioned “race”. If their aid was really as effective as their perception managers spun it as being, then this would never have happened since Russia wouldn’t waste valuable missiles and drones. Instead, it shocked and awed Ukraine and the West, which left a deep impression among both of their societies.
What just happened is a sign of what’s possibly to come if those two don’t comply with Russia’s requests for demilitarizing Ukraine, denazifying it, and restoring that country’s constitutional neutrality in exchange for it freezing the conflict the Line of Contact. As President Putin said in mid-December, “our troops have the initiative…we are doing what we consider necessary, what we want”, and this will continue from here on out until Russia’s three primary goals are achieved one way or another.
The head of the Bank of Russia, Elvira Nabiullina, has held the position for more than ten years. When she was just starting the job, the world media highlighted that Nabiullina had become the first woman to run a central bank in a G8 country. Now, however, Western media talk about her in a completely different context. Not long ago, Politico magazine named her “disruptor of the year” because she “has managed to stave off the effects of unprecedented Western sanctions designed to drain the Kremlin’s coffers.”
In her first interview since Russia’s military engagement with Ukraine began, Nabiullinatold RBK about the toughest sanctions and the delayed key-rate increase, and specified whether subsidized mortgages will become rare in the future.
This is a complete translation of this interview, made by RT especially for our readers.
“This is a highly negative signal for all the central banks”
— The financial sector was the first one to get hit by the sanctions. The largest banks fell under blocking sanctions, their reserves were frozen, currency restrictions were imposed, and the banks were disconnected from SWIFT. What was the most unexpected and difficult challenge for you?
— We have been living under sanctions since 2014 and, therefore, have always considered the risk that the sanctions may increase. We did a lot of work in this respect and conducted stress tests with many financial institutions. Therefore, when the major banks fell under sanctions, they were largely prepared for it. Disconnection from SWIFT has been a threat since 2014, so we created our own national payment system. We diversified our reserves and increased the share of yuan and gold reserves. International payments were actually the biggest issue, and we are still working on it. Blocked and frozen individual assets are also a painful subject since millions of people who were not sanctioned ended up with frozen assets. We are still trying to solve this problem together with the government.
As for the frozen reserves, I think this is a highly negative signal for all the central banks, because it violates the basic principles of security. But in this regard, we were aided by the floating exchange rate and the currency restrictions, which we adopted last spring and which were quite severe. Later, as you remember, these restrictions were weakened. This helped us mitigate financial stability risks.
As you rightly mentioned, the financial sector was the first one to get hit by the sanctions – and there were a lot of sanctions, not just the ones you mentioned. But in general, we managed to maintain financial stability.
— Do you think that the sanctions pressure will increase, particularly in regard to the financial sector?
— It is impossible to predict the sanctions policy. But we calculate a scenario with increased sanctions pressure, and every year we present it in [the report called] ‘The Main Directions of Monetary Policy.’ There is definitely a certain risk. The main thing we can do to counter this risk is to ensure macroeconomic stability and financial stability. For example, we offered banks a wide range of easing measures but [now] began to roll these back. We believe that banks should again increase their capital buffers in case of possible shocks. These include not only sanctions but shocks related to financial conditions, and so on, which [the banks] must be able to withstand. Therefore, first of all, we need to understand the risks and be prepared.
— Politico magazine called you the “disruptor of the year” – among other things – for helping Russia adapt to the sanctions. Do you agree with this? And in your opinion, have we overcome all challenges? Are there any new shocks ahead?
— It’s hard for me to answer the first part of the question. I believe that the central bank has long pursued a policy aimed at protecting incomes from devaluation as a result of high inflation, and we will continue doing so. [We have also worked on] ensuring the stability of the financial sector, which would allow people and businesses to preserve their savings and provide financial resources for economic restructuring. We see that economic restructuring is happening quite quickly. This is primarily due to the market-based nature of our economy and the business [sector], which has adapted very quickly.
Of course, we may be tempted to think that we did so well in 2022, and now, as they say, we have weathered the storm. But we must be prepared for increased sanctions and pressure. We were able to respond to the main challenges, particularly in the financial sector, but even in that sector, there are still unresolved problems, including cross-border payments. Yes, [payment] chains are being constructed, and they are constantly changing, but [cross-border payments] remain a problem for many businesses. However, according to our surveys, this problem has become slightly less severe.
Trust in the financial market is still a challenge due to blocked assets, and because many issuers have closed [access to] information due to sanctions, and so on. For us, the challenge is long-term money in the economy, and not only long-term loans but the capital market as well.
The goal of developing the capital market is very serious. We will need to overcome a certain loss of confidence in the financial market due to the sanctions.
Another challenge is to maintain the same pace of development in the fields of innovation and technology. Our financial sector is quite advanced – many people now understand this, comparing [our system with that of] other countries in terms of payment methods and so on. To continue on this course of development, we need to develop innovations. Moreover, some solutions – not all, but some – used to rely on foreign [technological] developments. Now, we’re doing it on our own. And, by the way, we see how this affects the availability of IT specialists, programmers, and other experts in all fields.
Therefore, there will be certain issues, we cannot say that we have solved all the challenges. However, I have a rather positive outlook on the development of the financial sector and its stability. I believe it will remain technologically driven, innovative, and will be able to meet the needs of both individuals and businesses.
“Looking back, we see that the policy was soft”
— This year, around mid-summer, the central bank began raising rates. Looking back, would you say this measure should have been implemented earlier?
— There’s been a rise in inflationary pressure in the second half of the year. Currently, the price growth rate is really quite high, well above our inflation target. Yes, looking back, we see that the monetary policy was soft, and we should have raised the rate earlier.
— When?
— In the spring, for example.
— You said that the key rate will remain high until the Bank of Russia sees a fairly stable trend towards slower price growth and lower inflation expectations. What parameters will you rely on? Will a slowdown in inflation over a period of two to three months be enough to make a decision on easing the monetary policy?
— We will indeed have to make sure that inflation is on a stable decline and that these are not one-off factors that affect the rate of price growth in a particular month. That’s why we analyze a wide range of indicators – not only the general price growth index but particularly the indicators that characterize the stability of inflation. These include core inflation and the price growth rate without the consideration of volatile elements. [Also, we look at] the price growth rate on the goods and services that are less dependent on the ruble exchange rate. We will need to make sure that the decline in the stable [rather than one-off] price growth factors is in itself a stable trend.
This will take at least two or three months – it will depend on a wide range of indicators that characterize stable inflation. And, of course, inflation expectations are very important. These remain high and, according to recent polls, have further increased. High inflation expectations demonstrate inert inflationary processes. The higher the inflation expectations, the more difficult it is to reduce inflation. Therefore, we will consider all these factors.
— Just when things started slowing down and inflation expectations were about to decrease, egg [prices] had to surge and ruin everything.
— This is one of the parameters. When the price growth rate is high, something unexpected constantly happens. I remember in 2021, prices suddenly increased first on this product, then on that one. We may be tempted to associate high inflation with a specific product. But, unfortunately, there are general reasons [for the inflation]. First of all, this happens when a high growth in demand exceeds the supply.
— How long will the factors that boost inflation – such as high demand, record-high fiscal stimulus, and low unemployment – last?
— Some of these are long-term factors. This includes the situation in the labor market and low unemployment. But I believe this factor will actually determine supply [by influencing] the pace at which supply adjusts to the demand.
As for the fiscal stimulus, we indeed have a stimulating fiscal policy, but we expect that in 2024, it will decrease compared to 2023.
Consumer demand is indeed high, but it is directly influenced by our monetary policy and the key interest rate. There is a certain time lag between our decisions and their implementation in the economy. This is a long chain – after the key rate increases, the market rates on deposits and loans increase. This, in turn, affects the number of bank deposits and loans and influences people’s behavior – whether they will spend money, save it, and so on. And only after all of that does it affect prices. According to our estimates, the response lag is three to six [fiscal] quarters.
— It is still three to six quarters, so it isn’t getting longer?
— It’s still the same. We do not extend this period, but, of course, certain solutions may be implemented faster than others. It depends on other factors as well – inflation expectations, the dynamics of the exchange rate, and many other things. Therefore, in general, we assume that the decisions regarding the key rate are effective, we see that they are effective. They work, taking into account the response lags. We will assess how the effects of the previous decisions are being implemented in the economy.
— In September, you said that high interest rates in Russia will last for a long time. It seems that this has only fueled the demand for bank loans. Do you think that such a clear signal has, in a sense, played against the central bank?
— No, I don’t think so. Of course, there may be certain consequences, but they would have been indeed serious if inflation continued to rise and we increased the key rate very slowly. Then people would have realized that inflation is not about to slow down, that it would continue to increase, and the interest rate would continue to rise. But we tried to act decisively. Just to remind you, in six months, we have increased the interest rate from 7.5% to 16%. And each time, we assess whether the monetary policy is sufficiently rigid to achieve our inflation target of around 4% by next year.
The effects are already evident when it comes to market loans – for example, the demand for market-based mortgages is slowing down. Of course, certain demand is increasing – for example, the demand for subsidized mortgages: People try to quickly apply for such mortgages since when interest rates rise, the difference between a standard-rate mortgage and a fixed-rate subsidized mortgage makes it more attractive. But this actually relates to the scale of government subsidies more than to monetary policy.
“If oil prices reach $88-$90 per barrel, we can switch to buying foreign currency”
—In January, the central bank will resume the mirroring of fiscal rule-based regular operations by the Russian National Wealth Fund. The Bank of Russia remains a net seller of foreign currency, but will it also be a net buyer?
— Whether we will be a net seller or a net buyer largely depends on oil prices. If oil prices remain at their current level, we will be a net seller of foreign currency. If oil prices reach $88-$90 per barrel of Brent oil, then we can switch to buying foreign currency. In January, we will sell foreign currency. We will soon announce the operations that will happen in January.
— Do you consider it necessary to extend the presidential decree on the repatriation of foreign currency earnings, which expires in April 2024? You have always said that such measures should be temporary.
— I believe it should be a temporary measure. We indeed see that the amounts of foreign currency sold by exporters have been increasing. As of November, net sales of foreign currency by exporters came close to 100% of the revenue. But there are several factors [that we must take into account]. First of all, the currency is mainly sold by exporters, and this is driven by the high oil prices that we’ve seen in the past months.
Response lags exist here as well – between high oil prices, the arrival of export revenue, and the sale of currency. Mostly, the currency was sold due to high oil prices. There were [also] one-off factors related to foreign currency conversion for dividend payments. Plus, we’ve seen that some exporters, due to the high interest rate on ruble loans – which is also a result of our monetary policy — began taking foreign currency loans and then selling the currency to pay for their expenses in rubles. And, of course, the presidential decree also played a part. But it is probably impossible to isolate the effect of each particular factor now.
We believe the decree should be temporary because, over time, companies learn to circumvent the imposed restrictions. Plus, such restrictions make it difficult to make international payments, including payments for imports – such as the necessary equipment imports and so on. Therefore, we believe that [the decree] should be temporary. However, we will soon discuss this matter with the government.
— Is the sale of foreign currency revenue still a decisive factor for the ruble exchange rate?
I don’t believe so. The decisive, fundamental factors that affect the exchange rate include the state of the balance of payments, our exports, and the demand for imports in ruble terms. This demand has been fueled by the availability and rapid growth of ruble loans, among other things. So presently, the monetary policy clearly affects the stabilization of the exchange rate.
— So, in March, when the decree expires, we will not see any drastic changes in the situation on the foreign exchange market?
— We don’t expect that to happen.
— You mentioned the challenges for businesses [that may arise because of the decree]. There is something called “ruble circulation” – i.e. exporters who receive revenue in rubles under the terms of their contract need to convert it into foreign currency, return it, and convert it once again. Do you see the risks of such a double conversion?
— There is a certain problem related to the fact that many companies have switched to receiving export revenue in rubles. Though generally, this is a positive [trend]. When they are forced to convert a part of their revenue into foreign currency in order to sell it later, this increases the turnover of the foreign exchange market, but for companies, it simply implies additional commission fees for converting the currency. This has no major impact on the exchange rate.
— It has a greater impact on business.
— On business, yes. In terms of certain additional fees.
— Will there be any adjustments to the decree in this regard?
— This will be decided by the government.
“Banks will continue to make a profit”
— This year, we expect a record net profit for the banking sector. This has partly been a result of the currency revaluation, but that was a one-off factor. Are there any fundamental reasons why this year was so successful for the banks, or was it just luck, and next year could be much worse?
— Most of the reasons behind the profit growth are fundamental ones, although there were also certain one-off factors, such as the currency revaluation. In 11 months, banks earned a profit of 3.2 trillion rubles, including about 500 billion rubles, as a result of the currency revaluation. I’ll remind you that last year, they lost one trillion rubles due to the currency revaluation. But of course, the fundamental factors have been more important.
One of them – and it came as a surprise to many people – was how quickly the economy adapted to the sanctions and how quickly it has grown. Of course, this means better business for banks. Look at the figures for yourself: As of the beginning of December, corporate lending increased by 21% year-on-year, mortgages increased by 35%, consumer lending grew by 16%, and the commission incomes of banks increased by 38%. All this shows the development of the economy and the development of business.
But when we estimate the profits of the banking system, it is very important to look at the total two-year profit. Last year, bank profits amounted to just 200 billion rubles, they decreased almost ten times. In the economy as a whole, profits decreased by about 10%. Why did this happen? Because the banks acted in a conservative manner – and they were right to do so. They created reserves, expecting that some of the loans they provided would cease to be serviced since many businesses could get into financial trouble. But since the economy has been growing and loans are being serviced, the banks judge borrowers to be solvent, and they have dissolved these reserves this year.
But when we consider two-year profits, the average profits will probably be 1.7–1.8 trillion rubles. This is about a quarter less than in the ‘normal year’ of 2021.
Profits will remain positive next year, even without taking one-off factors into account. And this will allow banks to increase their capital. The banks have practically no other sources [of capital] – there is no access to external sources, so profits are their main source of capital. And capital is necessary in order to provide loans to economic sectors – without it, it is impossible to increase [the number of] loans. Therefore, banks will remain profitable and will continue to provide loans.
— Even at the current interest rates?
— Yes, even at the current rates. We’ve seen that lending has slightly slowed down as a result of high interest rates. I have already mentioned [the decrease in] mortgages and unsecured consumer lending. The first signs of this appeared in corporate lending. However, due to high inflation expectations, people and businesses took more loans because they believed that inflation would remain high. Therefore, inflation expectations are very important to us, and we are monitoring them. We expect that next year, lending growth won’t be as high as this year, but it will remain positive. In general, it will be about 5-10%.
— Large banks are planning to provide a fewer number of unsecured loans and mortgages in 2024. How will this affect their profits in 2024? Will the average profits that you mentioned – 1.7-1.8 trillion rubles – be exceeded?
— So far, we expect that the profit of the banking sector next year will be slightly over two trillion rubles. Due to high rates, the margin may slightly decrease, particularly since high interest rates are passed through to deposits more quickly than to borrowers and lenders. But nevertheless, economic activity is developing, there are positive growth rates, and [the banks] will earn profit.
“Subsidized mortgages will not be a rarity”
— The conditions for providing subsidized mortgages have already been made more strict. Could such mortgages become a rarity next year? Or perhaps all mortgages will become rare, considering the current interest rates?
— No, of course, mortgages will continue to be in demand. According to our estimates, this will not be a 35% growth, as this year, but around 7-12%. On the positive side, as a result of the decrease in the number of loans, real estate prices won’t grow as much. Because housing prices have also significantly increased.
Subsidized mortgages will not become a rarity. We assume that the large-scale subsidized mortgage program will end in July, but, for example, the Family Mortgage program will remain effective. This is a very popular type of mortgage. Family mortgages are now about the same in size as general subsidized mortgages. Therefore, subsidized mortgages will remain and, of course, will not be as “exotic” as they were before 2020. Moreover, market-based mortgage [programs] will develop. This process has slowed down a bit, but market-based mortgages continue to develop.
— The government has already agreed to increase the size of down payments and reduce the loan amounts on subsidized mortgages for the residents of the country’s main regions. Is the idea of differentiating mortgage rates by region, which was proposed a while ago, still relevant? If so, how much can we expect mortgage rates in Moscow and St. Petersburg to rise?
— Yes, we are discussing regional mortgage programs. A special working group has been set up in the State Duma, and we are a part of it. The Family Mortgage program is likely to remain. We will soon talk about extending it and the possible requirements. Family Mortgages are part of targeted mortgage programs.
There are indeed challenges since, in a number of regions, the housing market is stagnating. We see that the construction of new housing and affordable mortgages are mostly available in large cities. But we must give people a chance to solve their housing problems regardless of where they live. We will discuss how this may be done.
And, of course, we will also need to leave room for market-based mortgages. After all, people who do not fall under any preferential category or targeted social support program should be able to solve their housing problems with the help of market-based instruments.
— Could you list any regions that may take part in the subsidized regional mortgage program? What mortgage rates could be acceptable for them?
— It’s too early to answer both questions. Probably, it would not even be correct to consider a certain region as such. Because often, in the region’s major cities, the situation is acceptable, while in medium-sized cities or small towns, there are major problems.
I believe that we need to consider this subject in more detail, but all this requires discussion. The management of these programs and the criteria are very difficult issues. We have a working group – I think it will discuss all these possibilities. But, once again, the Family Mortgage program will most likely remain the basic [subsidized mortgage program], while the regional mortgage program requires additional discussions.
— The Bank of Russia pointed out the current imbalance in the mortgage market – prices on new housing (first-sale units) are a lot higher than on existing housing (resale). This fall, the gap exceeded 40%.
– Yes, it was 42%.
— What are your expectations after the forthcoming changes in the terms of the subsidized programs next year? Will this gap shrink, and if so, to what extent and how fast?
— I believe the gap should shrink. Because it carries risks for people and for banks. Before the introduction of large-scale subsidized programs, the gap was about 10%.
In the next few years, we should go back to the normal pricing gap between the new housing market and the existing housing market. How quickly this will happen will depend, among other things, on the subsidized programs – whether they will cover only first-sale housing or resale housing too. In my opinion, these programs should solve the challenges of people, providing them with affordable housing, rather than just supporting developers. If people improve their living conditions, it doesn’t matter whether they buy a new or resale property. But this also must be discussed with the government since the government is responsible for the subsidies. But I believe the gap should at least stop growing, because it kept growing last year as well, so it should begin to slowly shrink. But now, it is probably too early to talk about the pace at which [this gap] will shrink.
“Are there any issues that haven’t come to light yet? Probably, there are.”
— For the first time in many years, the central bank has not revoked a single banking license in the course of the year. For anyone who follows the financial market, this is a very unusual situation. How did it happen? Are our banks so resilient or…
— They are resilient.
— Or maybe some of the challenges haven’t come to light yet, after the shocks of last year? What do you think?
— The sanctions crisis that we experienced last year and this year was a test that demonstrated the effectiveness of our policy. And I can confidently say that the banks are indeed resilient – they coped with so many problems and survived this period well.
Are there any issues that haven’t come to light yet? Yes, probably there are, but these are not major problems. They include the blocked assets of banks. We have implemented easing measures so that [the banks] can create reserves within a period of ten years. When it comes to other regulatory concessions, we are gradually rolling them back. We are returning to normal regulation and to creating additional buffers.
— So 2024 may also pass without any revoked licenses?
—I hope so.
— Unexpectedly for the market, Vladimir Komlev – the head of the Russian National Card Payment System (NSPK) – recently announced that he would be leaving his post on January 1, after ten years in office. Could these changes indicate that the central bank intends to change the NSPK’s course of development?
— No, the course of development will remain the same: The creation of a national payment infrastructure. This has always been the goal of the NSPK and will remain so. The development of this infrastructure, which can be used by all the players in the financial market, ensures [healthy] competition. Both the central bank and NSPK will continue to pursue the same path.
And, of course, I would like to thank Vladimir Valeryevich [Komlev] – he has done a lot to provide Russia with its own national payment system – the Mir bank card and the Faster Payments System. Because when we started these projects in 2014, I remember how much skepticism there was. [People said], “Who needs this? We have Visa, we have Mastercard, we have other payment systems.” But we see that it turned out to be profitable. And these services, including the Faster Payments System, allow different banks to compete in the payments market.
“There are risks of investing in foreign securities even through friendly countries”
— The St. Petersburg (SPB) Stock Exchange was included in the Specially Designated Nationals (SDN) list. The regulator was reproached for allowing private investors to buy foreign securities, although unqualified investors were restricted from doing so. Where can we draw the line between protecting the interests of individual investors and offering a wide range of tools on the [financial] market?
— Finding balance is really difficult. We should give people an opportunity to diversify investments, but at the same time, protect them from risks that they may not be able to understand. We focus on protecting the unqualified investor. Indeed, our people had the opportunity to invest in foreign securities so that they could diversify their investment portfolios. And if they hadn’t had a chance to do this through Russian infrastructure, many would have done it directly through Western infrastructure.
After the sanctions were imposed, we warned about the [infrastructure-related] risks and restricted unqualified investors from buying foreign securities.
By February of last year, our investors owned almost $7 billion worth of foreign securities. As of November of this year, that number decreased to just over $3 billion. So, over this time, people have significantly reduced investments in foreign securities. And now, over 80% of holders of foreign securities are qualified investors.
Of course, there are risks of investing in foreign securities even through the infrastructure of friendly countries. We warned about these risks and obliged brokers to inform their clients. It’s one thing to work in a Russian jurisdiction, but it’s another thing to be responsible for the risks of a foreign jurisdiction. We see that our concerns were not in vain because many investors who owned foreign securities through the infrastructure of friendly countries met with challenges. Due to the risk of secondary sanctions, these organizations are now conducting lengthy compliance procedures.
— What does the central bank think about the fate and future prospects of the St. Petersburg Stock Exchange?
— Many of our large financial institutions are under sanctions. You can see for yourself that almost all of them have adapted, changed their business models, and continue to develop. I am sure that the St. Petersburg Stock Exchange will not be an exception. It is already considering new services and new products, and it possesses a high-tech infrastructure and is professionally competent. Therefore, I don’t feel worried about it.
— You mentioned that the Bank of Russia is considering scenarios of more severe sanctions. Do you consider it probable that sanctions will be imposed against the Moscow Stock Exchange? And in such a case, which currency trading scenarios will be implemented to determine the exchange rate?
— We consider different scenarios and different options of how to act [in such a case]. And so does the Moscow Stock Exchange. As for the functioning of the foreign exchange market, we also have an off-exchange market that offers currency trading. By the way, it already accounts for more than half (53%) of currency trading. As for the exchange rate mechanism, assessing various sanctions risks, last year, we issued an instruction explaining how the exchange rate would be determined. It will be established on the basis of off-exchange trading data, including bank reporting.
— In the absence of exchange trading, can off-exchange trading rates spin out of control?
— No, I don’t believe there will be [such risks]. It depends on the supply and demand [of the currency]. We have a fairly large off-exchange trading volume, and there are many players. However, we will need to obtain information about off-exchange transactions, so we will make use of different sources. But I don’t think that this in itself can seriously affect the exchange rate.
“There is interest, but it is weighed against the fears of sanctions”
— How do you assess the possibilities of an exchange of blocked assets between private investors? Are you aware of cases when non-residents asked national regulators for permission to carry out such operations?
— We have created the legal conditions that are necessary for such an exchange to take place. We believe this can be mutually beneficial for investors. But then, everything depends on the investors themselves, and primarily the non-residents. Currently, I have no information on whether they requested such [permission] or not.
— If everything works out and this stage of the exchange process takes place, will there be other steps? And will you increase the maximum amount that may be exchanged?
— Let’s first see if it happens, and then we will talk about it further. Because this stage is very important. It is aimed at helping a large number of investors, those with small investment amounts.
— The central bank discussed plans to build new chains with friendly depositories in order to gain access to foreign markets – but clearly, only friendly foreign markets. How are these plans going? And what kind of depositories are these?
— Indeed, building depository bridges is very important. We see that there is a need for this. We are holding talks with regulators of friendly countries to ensure that such projects are implemented. By the way, in September, we adopted a decision made by the board of directors and removed some regulatory barriers to constructing such bridges. If necessary, we are ready to make further adjustments. We see that the market players are also strengthening their cooperation. But so far, it’s too early to talk about final decisions. [The matter] is currently at the stage of discussions and [of seeking different] approaches.
— Can you specify what kind of friendly depositories these are? Are they in neighboring or far-away friendly countries?
— [We’re talking about] all friendly depositories.
— Do you feel that the other side is interested in this?
— There is interest, but it is weighed against the fears of secondary sanctions.
“There is always a chance that some people will engage in unfair practices”
— The president recently proposed extending the insurance of funds so that it would cover investment accounts up to 1.4 million rubles. However, this insurance will cover only the risks associated with the broker’s bankruptcy, not market risks. Do you have any concerns that unfair practices may arise since market players may tell clients that everything is insured, so they should “invest boldly”?
— Yes, we have such concerns. Because there is always a chance that some people will engage in unfair practices. We have already seen this. Particularly in cases when investment products were sold under the guise of insurance or capital guarantees. This happened even before this type of insurance existed. But we will fight against it. We will clarify [the situation] and put an end to these practices.
— Speaking of new tools for attracting long-term money, long-term investment tools, individual investment accounts of the third type (IIA-3), and long-term savings programs – how relevant are these tools for the investor, and will they be in demand?
— We believe they will be in demand. We see this based on the experience with IIA-1 and IIA-2 [brokerage accounts]– although a major motivation [for getting] IIS-1 was related to obtaining tax benefits. But we believe that people will also show interest in these [new tools]. We need to talk about these tools more. But we see people’s interest in investment diversification and even extending the investment [period]. Moreover, we also provide a number of benefits.
This interview was first published by RBK, translated and edited by the RT team:
