Disagreements over how to best boost Russia’s failing economy is being played out in public between political heavyweights and the country’s central bank.
In one corner is Igor Shuvalov, the country’s deputy prime minister, who says more money should be provided to help support corporate lending and he wants the interest rate cut by one percentage point.
Opposite is Bank Rossii, Russia’s central bank, which is resisting the call to cut rates in a bid to fight inflationary pressures.
Russia has seen its economic growth slump recently and Shuvalov argues that inflation is a concern and they went to keep retail price growth below 4%.
“We are trying to persuade the bank that they should reduce the interest rate but they reply ‘not yet’. We think that they should,” he said.
Call for interest rate cut
“The bank is independent and they say their decisions are based on the law.”
The cut in interest rates would help reduce borrowing costs as Russia’s growth has slowed to half of the 5% predicted by the government.
Inflation in 2012 reached 6.6% which is more than the year previously and higher than the target set by the central bank.
The bank’s stance is coming under increasing criticism with Shuvalov backed up by colleagues, including the country’s finance minister and deputy economy minister, who are also calling for easier credit availability.
However, critics say the move being put forward by politicians would be counter-productive in the long term because it would bring new risks to the economy.
They say that before borrowing costs can be lowered that growth would have to be boosted to a stable level of 5%.
Oil and gas reliant
Growth in Russia was 2.4% in the final quarter of 2012, the weakest it has been since 2010 when the country emerged from recession.
Shuvalov says the government is trying to diversify the country’s economy – especially with countries in the Asia Pacific region and invest more from its revenue from natural resources which account for 50.2% of its tax take.
“Our economy structure is not perfect and we depend on oil and gas a lot and we need more foreign investment and be more frugal that we are currently,” he said.
Mr Shuvalov also highlighted that Russia ‘had no plans’ to write off the £2 billion bail-out it handed to Cyprus in 2011 – and was resisting German calls for the country to contribute to the next planned bail-out.
He confirmed Cyprus had asked for more money, but was clear that he didn’t want ‘to provide any more’.
