Russia’s top banker warns of ‘stagflation’
Russia risks stagflation and faces an economic slowdown, partly due to an overheated housing market, Herman Gref, the CEO of the country’s largest bank, Sber, has warned.
Speaking at a Sber Investor Day on Friday, Gref noted that Russia’s economy has found itself in a “complicated situation,” with banks and borrowers bearing the brunt of the difficulties. He added that the economy could also be hit by a combination of high inflation and stagnant growth.
“It all depends on how long the gap between real inflation and market interest rates will last. There has never been such a positive spread, we cannot live like that for long. We are now seeing significant signs of an economic slowdown,” he said.
Russia’s key interest rate has reached a historic high of 21% as central bank tries to restrain inflation, driven in part by increased government spending. Some analysts are predicting that the interest rate could rise as high as 25%. Inflation is estimated at around 8.5%, although various independent estimates put the real figure several points higher.
According to Gref, the economic slowdown can be seen in housing development. There is a “strong pressure on the rate of housing delivery and investment,” he said, while warning the government and the central bank not to “go too far.”
“Otherwise, the return to economic growth will be much more difficult. And, of course, the danger of stagflation is looming,” Gref warned.
Russia’s housing market has been widely considered overheated since the government introduced several mortgage stimulus programs that drove up housing prices. Many of those stimulus programs have been withdrawn this year, and higher interest rates are helping to cool the market.
Last month, Elvira Nabiullina, the head of Russia’s central bank, said the key interest rate could be gradually reduced in 2025 if inflation is brought down to the target level of around 4.5%. She also said there is “no risk” of stagflation if the regulator sticks to a sensible and timely approach to offset this danger.
