Monetary policy spillovers: the case of 2014 shock in Russia. Bank of Russia Research and forecasting Department

Transcription

1 Monetary policy spillovers: the case of 2014 shock in Russia Bank of Russia Research and forecasting Department Zurich, May 10, 2017

2 Monetary spillovers channels Exchange rate channel Domestic demand channel Financial spillovers Source: IFDP Notes International Spillovers of Monetary Policy by John Ammer, Michiel De Pooter, Christopher Erceg, and Steven Kamin 2

3 YTM, % Financial shock in dual shock of falling oil prices and external financing constraints Russia sovereign USD eurobonds index 10 Investment rating corporate USD eurobonds index Source: Cbonds 3

4 Financial shock in Local government bond (OFZ) yield, % 1 year 10 years Source: Cbonds 4

5 Rapid deleveraging Accelerated foreign debt accumulation in was followed by rapid deleveraging in External debt by sectors, USDbn Banks (lhs) Other sectors (rhs) Source: Bank of Russia 5

6 Risk premium fell back to average EM level 700 Russia and other EMs average 5 year CDS premium EM* Russia * Average of Bulgaria, Hungary, Poland, Mexico, Brazil, South Africa, Turkey, Indonesia etc Source: Bloomberg Financie L.P. 6

7 Volatility returned to pre-shock level Oil price and RUB volatility, % annualized month realised Brent volatility 1 month implied RUB/USD volatility 1 month realised RUB/USD volatility Source: Bloomberg Finance L.P. 7

8 What policy mix allowed to smooth the shock? 8

9 USDbn Shift to IT and flexible exchange rate regime Nov 2014 Bank of Russia shifted to inflation targeting and flexible exchange rate regime Bank of Russia monthly operations on FX market 10 5 Amount of US dollars sold Amount of US dollars bought Interventions made for financial stability purposes Bank of Russia -25 switched to inflation targeting and flexible exchange rate regime Source: Bank of Russia 9

10 Monetary policy tightening Bank of Russia policy rates and overnight money market rate Overnight credit rate Key rate Overnight deposit rate RUONIA 4 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Source: Bank of Russia, Bloomberg Finance L.P. 10

11 RUB depreciation caused a shift in relative prices EM currencies dynamics, index Jan 13 = 100 Russian Ruble Indian Rupee Brazilian Real Depreciation against USD Turkish Lira South African Rand Mexican Peco Source: Bloomberg Finance L.P. 11

12 which sent inflation above 15% 20 Inflation, % y/y Source: Rosstat 12

13 Fiscal consolidation plan 12 Federal budget deficit, % of GDP 10 Deficit Non-oil deficit Source: Ministry of Finance, Rosstat 13

14 Russia has positive net IIP Net International Investment position of Russian Federation Net International investment position (rhs) Assets Liabilities Source: Bank of Russia 14

15 USDbn FX liquidity shortage covered by FX repo Commercial banks liabilities to Bank of Russia via FX repo days 28 days 12 months Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Source: Bank of Russia 15

16 Balance of payments adjustment Current account and capital outflow as % of GDP 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% Net private capital outflow (+)/inflow (-) Current account Source: Bank of Russia 16

17 Strong incentives for deposit de-dollarisation Retail deposit rates, % spread USD RUB Source: Bank of Russia 17

18 FX debt is gradually replaced by local currency debt Non-bank sectors debt growth decomposition, % y/y Source: Bank of Russia, Cbonds, Bloomberg Finance L.P. 18

19 Recession was moderate 2 GDP, % q/q SA Source: Rosstat, Bank of Russia seasonal adjustment 19

20 Russia is less exposed to risks of Fed policy normalization Although Bank of Russia gradually lowers policy rates differential with Fed rate stays high both in nominal and real terms Difference Russia key rate Fed funds rate - upper bound (rhs) 1,25 1,00 0,75 0,50 0,25 5 Sep-13 Sep-14 Sep-15 Sep-16 0,00 Source: Bank of Russia, Federal Reserve 20

21 but not fully immune Some EM countries have weak external position with excessive external debt accumulated under the loose DM monetary policy Some countries face shocks coming from political uncertainty both internally and externally So far this year EMs saw strong capital inflows as Fed policy normalization pace is believed to be very careful and moderate Yet, capital flows may reverse causing capital flows from EMs as a whole 21

22 Lessons from Russia Huge external shock caused rapid BoP adjustment via deleveraging and RUB depreciation Switch to flexible exchange rate regime and inflation targeting accompanied by tight monetary policy allowed to smooth the shock Balanced fiscal policy and visible fiscal consolidation plan contributed to macroeconomic stabilization FX liquidity shortage was covered by Bank of Russia FX repo operations 22

23 Spillovers to CIS countries Decreased domestic demand hit some CIS exporters RUB depreciation and falling real wages and incomes impacted work remittances flows to CIS countries 23

24 Thank you! 24