As our experience has shown, during times of high volatility it is crucial to avoid rash responses to shocks (shocks being any big changes, both positive and negative). This policy suggests that rushed decisions should be avoided. For example, if at the beginning of the year we had lowered the rate at a faster pace, as many wanted us to, we might very well have faced the need to sharply increase it again shortly thereafter. However, there are clearly also shocks such as those in 2014 that require a more decisive response. However, it is important to contend with both the consequences of shocks on inflation as well as the reasons behind them. These reasons are often beyond the Central Bank’s control but this does not mean it is impossible to hit upon suitable state policy measures on the whole. This primarily concerns the dynamics of food inflation and regulated prices and rates. The state policy of developing infrastructure, logistics, market competition (primarily food markets), and the regulation of natural monopolies’ rates can go a long way to reduce price volatility and thus lead to a faster reduction in inflation expectations. This, in turn, will allow the Central Bank to draw the key rate closer to the equilibrium-neutral level faster (I would like to reiterate that, in our estimation, it stands at 2.5-3% in real terms or 6.5-7% in nominal terms).
When this collateral is easily withdrawn, the quality of the loan drops sharply. In cases where the bank’s license is revoked, the bankruptcy estate receives nothing. The rights of depositors and creditors are compromised. In our opinion, collateral should only be taken into account when calculating reserves if the Central Bank has the right to impose a moratorium on operations with it. Similarly, bankruptcy law must undergo improvement allowing honest creditors faster access to collateral acquired under a contract or other assets by court decision. I would like to reiterate that the regulator is of the firm belief that secured lending should not dominate the lending profile. This is precisely how the banking system will contribute to economic development. Lombard loans should not establish themselves as the mainstay of banking business. Banks need to work with clients and examine their business models rather than expect to acquire their assets. I would like to address our priorities in supervision. Over the course of the year, the Bank of Russia reengineered its supervisory activities: it established a risk analysis service (which assesses the quality of loans and the values of securities and derivatives, as well as collateral). We are already seeing certain results. We are now centralising supervision – we have created an ongoing banking supervision service in order to accelerate the use of supervisory response measures and establish a uniform supervisory practice in Russia. We call the model we are pursuing advisory supervision.