I see the goal, I will not see any obstacles
The National Bank, in its comments on "burning teaspoon", shows the domestic kitchen, with what help is the everlasting concern of Ukrainian financial policy in preparation – macroeconomic stability.
According to the regulator, the operational objective of the financial policy from now on is "keeping interest rates hryvnia between banks on loans at a level close to the discount rate, within the range of interest rates on permanent access instruments." An indicator of the level of interbank credit market should be the Ukrainian Interbank Rate Index for loans and deposits overnight in national currency (UIIR).
In simple words, if the NBU noted that their strategic objective for inflation in the medium term is 5%, then today the goal of carrying out financial operations, given that the discount rate is 18%, is to set the bank's indicators between the banks in the corridor NBU interest rates for overnight refinancing and deposit regulator certificates, that is, ranging from 16% (deposit certificates) to 20% (NBU overnight).
On the exit, we have a truly unique model of financial support, when the tail exactly tears the dog, and not the opposite. In a system of such inflation targeting, almost any discount rate can be justified. And in this regard all the peer innovation is.
Recently, the NBU is increasingly entering the abyss of cognitive dissonance: on the one hand, the basic financial goal is to reach the range of one digit numbers on inflation and to install at 5%. On the other hand, there is a steady growing rate of discount, which has increased over the last 10 months from 14.5 to 18%. And this value is almost four times higher than the stated inflation target. In general, it was inconvenient.
Introduce the concept of "active" financial goals and they should erase this sinister disconnection. Now you can explain almost everything: for example, you have an inflation target of 1% and a 100% discount rate, while the NBU gives refinancing (overnight) to banks at 110%, and attracts money for certificates deposit at 90%. From now on, the main operational objective of the central bank for the suit to sit, that is, for the interbank credit rate to "enter the banks" or in the above profitability range that & # 39 ; r permanent access instruments: ranging from 90 to 110%. If this happens, the regulator is all white, and the operational goal is achieved. It does not matter, with inflation having to plan 1% conditionally, the discount rate is 100%. All goals are fulfilled or in the process of delivery.
So far, the NBU has successfully brought a specific common denominator, the discount rate and dynamics of rates on the interbank market. Although this is just a unique financial support package: if UIMS arises, you can raise the discount rate and state that the range of interest rates has been successfully saved.
The problem here is now that Ukrainian banks are not practically turning to the help of the NBU and have no problems with liquidity due to the fact that they are scarce to the corporate sector and invest about 80 billion UAH either whether in short-term government bonds or deposit certificates & NBUs.
In this paragraph, targeting interest rates between banks such as fishing in a good fund. On the other hand, why should not the NBU tie the level of their rates on deposit certificates to the proposed inflation rate? In addition to a specific bank boundary, for example, 50% of the actual consumer price index. For example, inflation for next year has planned at the level of 6%, and the current consumer price level is 10% for the year. A simple calculation shows that the maximum return on deposit certificates & NBUs should be 11%, not the current 16%.
Naturally, this model is presented in a simpler form, but its essence is quite understandable: reducing the power of financial friction, when more money is thrown into the system than it was attracted (in after the amount accrued interest on certificates) with all charges on deposit certificates. And also gradually decreasing the bronze dependence of commercial banks on making money on instruments and government. Slowly but surely, the banking system must be turned towards the real economy sector. Of course, shortcomings are heard here that no-one is lending and showing us a profitable business – we would be glad to give him a loan. But the fact is that such a thesis is pure Phariseism. No one will be looking for private lenders if you can stay in a warm bath of NBU certificates and literally gain in the air. In addition, any profitable business after a 25% loan will become an inappropriate start.
The credit discount does not work in Ukraine when the rate on loans is lower than the level of operating profitability of the lender. After all, only in this case, the loan is making a profit. Otherwise, there is a common working capital washing and a way to bankruptcy.
The rising growth of the discount rate led to a widening gap between it and the level of short-term and long-term loans granted to individuals. Why is "physics" taken to analyze? The fact is that, in the corporate sector of credit now, old credits are replaced by new ones, or state banks "think" with interest rates, crediting state companies or "necessary" structures . That is why NBU statistics in the corporate sector have been distorted.
But in the part of retail loans, you can feel the price of the money, the expectations of inflation depreciation, and the level of systemic risks. These rates are in the range of 30-40%. And this dynamic man lives his own life, not related to the level of the NBU discount rate.
Mini Food Game
But this is the main aim of macroeconomic stability: low inflation is not "something in itself", but there is only a prerequisite for renewing credit transfer in the economy, when simple goals such as: low credit rates get achieve them – to promote the profitability of new productions; discount rate reduction – credit growth – increase in GDP.
And if the basic inflation target posted by the NBU is 5%, it means that loans to the population and business should be secured at a maximum of 10%.
Decrease in lending rates to 10%, when inflation is 5% and around the same – bank edge, it is quite possible in the next two years. But subject to a number of basic assumptions. The first is to form a currency exchange policy according to the "European swap" approach, when investors receive a clear horizon of investment planning in the medium term (for start-ups) – up to three years. In addition, there is more confidence in the NBU policy and financial instruments from economic agents. And this is only possible in the case when there is a clear relationship between the financial mechanism of the National Bank and the real response in the economy. Simply when the change in the discount rate is interesting not only for bank treasurers.
NBU should target trust as a key condition for reducing inflation expectations in society. The second less important point is that the state should focus on completing the technical part of the reform of the system for recording ownership and registration of the state.
Mechanisms such as landfill, the property rights register, the register of legal entities should work smoothly and safeguard the owners reliably. The protection of rights of the creditor / investor and full judicial reform needs to be strengthened. The conditions given to economic cases in court should be reduced several times. For the transitional period, it is important to introduce a system of state securities for the amount of foreign investments and establish an arbitration court procedure on disputes of investors with government bodies. This whole road map is not difficult to implement, because of its operation only the famous political will is needed
However, in today's financial pattern, delivering 10% loans remains unrealistic. After all, we can get zero inflation and even a defense, while the lending rates will remain within 15% of the year, for example.
Probably, the NBU decided to play in the American Fox Fox Terrier and become foodstuff, where there are concepts such as a federal reserves rate and the average weighted value of this indicator (effective rate of federal currency) . We will have the above Ukrainian Interbank Rate Index (UIMS) for loans and deposits overnight in national currency. The United States also has a federal fund target rate, which is set at a meeting of the Federal Open Market Operations Committee. In turn, the Fed, as the central financial authority, carries out open market operations in order to smooth the difference between target and complete rates.
It was decided to apply a similar sinceatz mechanism in the NBU, probably, on the advice of the "senior fighters". Or they take advantage of mechanical tracking paper, well among official expert advisers to many ex-technologies that are familiar with the "pull" business.
But why the walls of the regulator can not adopt more complex models, the same Taylor rule, which is not only linked to inflation and the use of central bank financial instruments, but also the GDP dynamics -and increase employment (the "gap" of the GDP), described at work "Optional policy against the rules policy in practice".
Optional – which means that the regulator makes decisions based on the whole set of available information, and does not act on well defined patterns. Or what is allowed for Thursday, a bull is not allowed? In this case, inevitably the national financial policy pressures will be followed by the national economy binge. And, breaking the Werther robot of the "Hotel of the Future", we will inevitably replace the epigons, and not very talented, in the "robot- monetarists ".
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