The Bank of Russia has been removing taboos from recipes since the 1990s and launching a “printing press” in order to fill a hole in the federal budget with hundreds of billions of rubles of money issue, which lost one in five pledged rubles due to the oil crash and economic crisis.
Since May, the Central Bank of the Russian Federation has been launching a new mechanism of injections into the banking system – long-term repos, head of the regulator Elvira Nabiullina said at a press conference on Friday. As part of these operations, credit organizations will be able to borrow rubles from the Central Bank of Russia on the security of securities.
The Central Bank of the Russian Federation will only accept government bonds as collateral, Nabiullina emphasized. This is OFZ, with the help of which the Ministry of Finance of Russia raises debt for the federal budget, as well as bonds of constituent entities of the Russian Federation and municipal entities with the highest credit rating on a national scale.
Operations will be held monthly, loans will be issued for a period of one month and one year. “We plan to conduct the first monthly repo auction at the end of May, and the annual repo at the end of June,” Nabiullina said.
The new mechanism will allow authorities to print rubles for the federal budget and avoid additional costs from the National Wealth Fund, Bloomberg explained two sources familiar with the government’s plans.
The law prohibits the CBR from directly financing the treasury by issuing money by buying up federal loan bonds. However, he can pour money into banks, accepting as a guarantee the government securities they bought at auctions and in the market.
According to the Russian Ministry of Finance, with oil at $ 30 per barrel (base case), the budget will lose 4 trillion rubles in revenue and remain in deficit of 4% of GDP. This is 4.4 trillion rubles in monetary terms, 21% of the size of the budget itself (20.8 trillion rubles).
The government intends to take less than half of the missing amount — 2 trillion rubles — from the NWF, where $ 150 billion in oil and gas revenues was accumulated at the beginning of the year. The Ministry of Finance will take another trillion of the last year’s unspent money, Anton Siluanov, head of the department, told Vedomosti.
The remainder will be “printed” by the Central Bank of the Russian Federation. The volume of long-term repo transactions will be 1-1.5 trillion rubles, according to Bloomberg sources. This amount is limited due to the risks of accelerating inflation.
The new scheme can be called “QE can be called Russian,” says Oleg Vyugin, who in the past served as deputy finance minister and deputy chairman of the CBR. “The president (Vladimir Putin) is very afraid of spending the funds of the National Wealth Fund,” he notes. – Because the NWF spent – and nothing else. Psychologically, it becomes bad, because you do not know what will happen next. “
The de facto financing of the federal budget has already fallen on the shoulders of the Central Bank of Russia, points out Raiffeisenbank analyst Denis Poryvay. From the beginning of March to May 8, the Central Bank of the Russian Federation in the banking system 785 billion rubles of additional loans. At the same time, banks invested about 300 billion rubles in federal loan bonds in March, buying securities from foreign investors who fled the market. In April, the Russian Ministry of Finance resumed auctions of government bonds and, not without the help of Russian investors, borrowed 240 billion rubles.
The problem is that at the moment, central bank repo transactions are short-term. Loans are issued for a maximum of a week, which creates refinancing risks for banks.
“The annual repo rate will be floating – change after the key rate,” said Nabiullina. – Thus, these operations will not affect interest rates in the economy. All this will ensure the normal functioning of the money market without distorting the action of market mechanisms. ”