Low interest rates may mean trouble, fears former Russian Minister

Russia’s low interest rates may trigger a second wave of bankruptcy for the country’s companies and banks. Mr German Gref, head of Sberbank, expressed this concern following the central bank’s 14th rate cut since April 2009.

The former economy minister told a conference in Moscow that the record 7.75 per cent rate was “unreasonably low” and did not “reflect the real risks in the economy”. Many banks, which are in a “touchy situation” already, will have low or negative margins because of the rate cuts, he said. “Low rates will drive investors into investment projects. And when the trend of unwinding starts, we will have new bankruptcies of companies and banks.”

Mr Gref said “no one believed in the continuing trend of falling inflation”, one of the government’s main reasons for keeping interest rates low. Mr Alexei Kudrin, the finance minister, disagreed with Mr Gref about the rates, noting the deceleration of inflation which fell from 13 per cent before the crisis to 6 per cent in annual terms.