Why Does Business Need Authority in Monetary Policy Management?
Recently, the Russian business community has been actively discussing a significant proposal — granting the government the authority to influence the country's monetary policy. This change implies amendments to Federal Law 86-FZ "On the Central Bank of the Russian Federation," with the central thesis being the necessity of coordinating the Central Bank's strategic decisions with government authorities. In light of the high key interest rate, which has reached 21%, this proposal has particular importance for investors and entrepreneurs.
Why Are Large Businesses Proposing Reforms?
The high key interest rate strongly impacts the Russian economy, limiting access to financing for many companies. Major players, like small and medium-sized businesses, face constraints in attracting the funds necessary for project development and supporting ongoing operational activities. This is especially relevant for strategic sectors and large-scale projects that require significant capital investments.
Transferring some powers to the government would enable it to verify whether the main parameters of monetary policy align with the goals set at the state level. These goals include not only stable socio-economic development but also strengthening national sovereignty, population growth, and improved living standards. Businesses believe that financial decisions concerning the key rate and other Central Bank tools should take into account the long-term interests of the national economy.
What Does This Mean for Investors and Businesses?
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Accessibility and Cost of Capital The high key interest rate increases the cost of capital for businesses, making projects, particularly long-term ones, less profitable. Investments in infrastructure, technology startups, and other promising sectors become financially challenging and therefore less attractive to private investors.
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Reduction of Risks for Entrepreneurs The changes will help lower budget expenditures on subsidizing loan rates, thereby maintaining a more stable level of government support during the implementation of large projects. Moreover, this will allow investors and entrepreneurs to better assess risks, knowing that the main directions of monetary policy will undergo government scrutiny.
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Strengthening the National Economy Aligning the parameters of monetary policy with government goals could foster greater economic resilience and independence for Russia. For businesses, this opens up new opportunities — particularly for growth in the domestic market, increased competitiveness, and optimized borrowing costs.
What Are the Potential Risks?
However, transferring the authority to manage monetary policy could lead to certain risks. Political influence on financial decisions can introduce volatility into the economic situation. Investors should consider that the key interest rate may be adjusted not solely for achieving financial stability but also in alignment with state strategy, which could affect the returns and risk levels of investments in certain sectors.
How Will the Investment Climate Change?
The adoption of this reform could positively impact the investment climate in the country. The availability of cheaper capital in the long term will reduce borrowing costs for businesses, increasing the attractiveness of Russian assets for both domestic and foreign investors. This will particularly affect the innovation sector, industry, agro-industrial complex, and infrastructure projects, where capital expenditures are exceptionally high.
Opinion of Sergey Tereshkin, General Director of Open Oil Market
"For us, as well as for many companies, the cost of capital plays a crucial role in strategic planning and implementing long-term projects. In the context of a high key interest rate, business prospects become significantly more complicated. We see that any movement towards coordinating financial policy with the interests of the national economy could strengthen the Russian market, making it more resilient and competitive. Government support in financial decisions, such as monetary policy, creates optimal conditions for growth and development — and this is essential for all those planning to expand their businesses and attract investments."
The proposal from the business community to transfer powers to the government in the field of monetary policy, despite its pros and cons, is a significant step toward strengthening the national economy and supporting domestic investment. This decision could stimulate access to capital and create more stable conditions for businesses and investors in Russia.
