President Putin’s four-peat victory an attractive sign for Russian economy

The re-election of Vladimir Vladimirovich Putin has energized the Russian economy. A series of reports that have come since the March 18 Presidential election shows that the prospects for Russia are for steady sustainable growth in the years to come.

Some of this was already taking place, such as the Standard and Poor’s assessments of the credit ratings of several of Russia’s companies, which was raised to “stable” in late February. The companies included in this were Transneft, Gazprom, Rushydro, Russian Railways, Atomenergoprom (a subsidiary of Rosatom), Gazprom Neft, Rosneft, TGC-1, Mosenergo, Rosseti and the Russian Railways subsidiary Federal Passenger Company.

The overall rating for Russia had earlier been raised to the investment-grade BBB rating, from the lower “speculative” BB+ rating.

As can be surmised by the names of most of these companies, there is still a hugely lopsided emphasis on fossil fuel development and extraction companies in the Russia Federation. This has led to some real valuation problems with the Russian Ruble, as it has in the pas fluctuated strongly with the increase or decrease in oil and gas prices. The country is taking steps to eliminate this problem.

A March 23 article in TASS carries a report by the Chief of the Bank Elvira Nabuillina, noting that the Ruble has become less sensitive to oil prices. She also noted that the inflation rate in the country has slowed dramatically to an all-time low level, around 3 to 4 percent. Further, another March 23 piece shows Russia’s projected GDP growth rate is expected to reach between 1.5 and 2 percent between 2018 and 2020. In 2017 that rate was projected at 1 percent.

These developments have combined to encourage Russia’s Central Bank to lower its key lending rate from 7.5% to 7.25% per annum, and this cut comes only 45 days after the most recent one before it. The Bank also noted that further reductions were likely in the near future. Russia’s goal is for what is called a “neutral monetary policy” to be in place by the end of 2018.

A neutral monetary policy is one in which the government is neither trying to kickstart the economy nor slow it down, through the use of adjusting lending rates. A neutral monetary policy is consistent with nations that have full employment, trends that show growth in the economy, and stable prices.

All these developments have been enhanced by the election victory, and further reports by RT note that foreign investors are likely to inject some US $30 bn of investments, as Russia is seen as an increasingly attractive place to do business.

Since the elections are over, it will allow institutional investors to actively implement projects in Russia in the medium term, which can provide an additional influx of $25-30 billion into the Russian economy,” RDIF’s Kirill Dmitriev told reporters.

He said that “the voting results testify to the continuation of the economic policy aimed at realizing the investment potential.”