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To prevent the population from noticing the “deflation of the bubble,” an active fiscal and monetary policy is needed, adds The Bell’s interlocutor. But the arsenal of economic measures has already been largely used. Tightening of monetary policy has been implemented, tightening of budgetary policy is included in the plan for 2025, he recalls. In addition, companies do not have endless resources to increase wages, and consumers cannot endlessly increase consumption.
If Russia faces a crisis after overheating, it will be in the “Chinese style,” where the state will centrally deal with emerging problems, says Kiselev from the Florence School of Banking. In Western market economies, if people at some point feel that there are problems in the economy, they can try to move into safe assets - cash or government bonds. But in Russia this makes no sense: almost the entire financial sector is state-owned, which means that a cash ruble and an account in Sberbank are the same thing, explains Kiselev.
“The state will neutralize the risk of a financial crisis, but in the future it will have to recapitalize unprofitable companies and banks. And in fact, all this financing will come from taxpayers and investors,” says the economist. Among the possible consequences, Kiselev names the risks of a one-time adjustment of the price level or exchange rate, but without a banking crisis, which was feared in the first months after the start of the war.
2.6 Russia winds down mortgage subsidy programme
Russia is winding down an expensive mortgage subsidies programme that’s fuelled a property boom and driven economic growth despite sanctions, in the hope of avoiding a housing bubble and cooling an over-hot economy.
The real estate market has been one of the key drivers of Russia’s wartime economy and boosted growth. However, it has also stoked inflation and the regulator has been worried about soaring property prices. The end of subsidies are likely to cool the overheated economy, reduce inflationary pressure, but will heavily impact the real estate sector and housing prices.
The program provided mortgages at 8% interest against the prime Central Bank of Russia (CBR) rate of 16% to battle accelerating inflation. The regulator is widely expected to raise rates by another 100-200bp before the end of the year.
The subsidy program was introduced in 2020 to support the real estate sector and Russia’s economic growth in general. Russia’s Finance Ministry has spent close to half a trillion rubles ($5.6bn) since then to subsidize mortgages.
CBR Governor Elvira Nabiullina has been strongly opposed to the heavily subsidised mortgage programme, which she says distorts the market and threatens to fuel a housing market bubble. Cheap mortgages have driven up prices, enriched developers but brought housing affordability to multi-year lows.
28 RUSSIA Country Report August 2024 www.intellinews.com