The Russian economy faces the risk of a significant slowdown due to an extended period of elevated interest rates, and returning to a growth trajectory might prove challenging, as warned by a senior official from Sberbank, the country’s largest bank.
Alexander Vedyakhin, the First Deputy CEO of Sberbank, expressed to Reuters on Wednesday, “There is a risk of excessive cooling of the economy, and we might struggle to emerge from this downturn, leading to potentially limited growth.”
He anticipated that Russia’s GDP would expand by only 1 to 2% this year, which is below the government’s forecast of 2.5%.
This month, the Central Bank of Russia reduced its key interest rate from a record high of 21% to 20%, aiming to mitigate inflationary pressures from an overheated wartime economy and to respond to rising political expectations for lower borrowing costs.
“I believe it is likely that the Central Bank’s primary rate may reach around 17% by the year’s end. A sharp reduction isn’t expected since there is a risk of renewed inflation,” Vedyakhin noted.
He emphasized the necessity of a more substantial rate cut to foster economic rejuvenation.
“An astute investor with such an EBITDA margin could engage in new ventures. I think a rate below 15%, roughly in the range of 12-14%, would provide a substantial boost for the economy to begin recovering, advancing, and thriving,” he suggested.
Vedyakhin also pointed out the issue of an overvalued ruble, attributing its strength to high interest rates, a weakened domestic currency market, logistical problems, payment difficulties, and foreign currency sales from the fiscal reserve.
“Our analysts believe the ruble is currently overpriced. In a more balanced scenario, considering present oil prices and macroeconomic conditions, it should be valued between 90-95 rubles per dollar,” he stated.
These comments come amid rising concerns from high-ranking officials regarding the nation’s economic direction.
Maxim Oreshkin, Deputy Chief of Staff of the Kremlin, recently stated that Russia’s existing growth model has “run its course” and called for a shift to a more advanced technological and organizational framework.
President Vladimir Putin has also recognized the trend of economic cooling, urging government officials to proceed cautiously and avoid “excessive cooling, akin to that in a cryochamber.”
