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Russian federal government blames financial investment downturn on high rate of interest

The Russian federal government countered at central bank claims that labour scarcities are causing a slowdown in investment development, with Deputy Prime Minister Alexander Novak on Friday squarely putting the blame on high rate of interest.

The Bank of Russia last month treked its crucial rate by 200 basis indicate 21%, the highest level since the early years of President Vladimir Putin's guideline, as heavy state spending on the dispute in Ukraine tightens the labour market, pushing up wages and inflation.

A growing number of commercial companies are saying that product investment and advancement might suffer.

Investments are one of the vital, crucial conditions of financial development, Novak stated at a forum in the Urals city of Chelyabinsk. The development rate of investments ought to be higher than the growth rate of the economy.

Now, taking into account the high key rate we see a minor decline in investment activity.

Kirill Tremasov, head of the Bank of Russia's monetary policy department, had on Thursday named widespread labour shortages as the primary culprit.

The bank and federal government have actually participated in public spats over policy before, notably concerning the extension of capital controls supporting the rouble.

The issue with such an essential rate is the realisation of long financial investment jobs, Novak stated. In practice, just really highly lucrative business can afford it or those financed by spending plan funds - state business.

Andrei Klepach, primary financial expert at state advancement bank VEB, also blamed high rates, however warned that not all companies would be permitted to simply cut financial investments.

Those who, luckily or unfortunately, have a state defence order, are now criminally accountable for its non-fulfilment, he said. So for them, with a rate at 20% or 30%, they will all come and take out a loan, so as not to go to jail.

Prevalent failures to pay, something major business union RSPP flagged last week, could trigger mass bankruptcies in about two years from now, Klepach stated.

(source: Reuters)