The key rate remains unchanged
Inflation forecast
for the year-end 2021
There is space for monetary policy easing. The Bank of Russia will consider the necessity of key rate reduction at its upcoming meetings
is close to 4%
Inflation and BoR key rate, YoY
In September, annual inflation stood at 3.7%. Inflation processes are in line with the baseline scenario. Consumer prices are forecast to grow by 3.9–4.2% over the entire year.
Price movements are impacted by competing factors. On the one hand, inflation is driven by the actual weakening of the ruble; on the other hand, it is influenced by the more moderate revival of domestic demand than in summer.
Given the current monetary policy stance, annual inflation will come in at 3.5–4.0% in 2021 and will stay close to 4% further on. The accommodative monetary policy pursued limits the risks of a substantial deviation of inflation downwards from the target.
slowed down
GDP growth rate, YoY
The recovery growth of the economy decelerated in autumn, due to both the exhausted effects of pent-up demand and the worsening epidemiological situation.
According to the Bank of Russia’s estimate, GDP will decrease by 4.0–5.0% in 2020, which is slightly less than assumed in July’s forecast (4.5–5.5%). This is predominantly related to a slightly more favourable than expected export performance in Q2-Q3 2020.
The earlier key rate cuts will continue to support the economy both this year and in 2021.
have been easing
OFZ yields and the Bank of Russia key rate, %
The earlier decisions on the key rate reduction continue to translate into decreases in loan and deposit rates. These conditions promote the adjustment of saving models, including the redistribution of funds across various financial market instruments.
The reduction in loan rates is also supported by preferencial lending programmes. The lowering of interest rates is combined with the easing of non-price lending conditions.
The yields of federal government bonds with longer maturities decreased amid a certain stabilisation in financial markets.
Disinflationary risks are mostly associated with further coronavirus spread trends in Russia and abroad.
Short-term proinflationary risks are primarily caused by intensified volatility in global markets, including due to geopolitical events. This may impact both exchange rate and inflation expectations.
In addition, uncertainty remains about how the pandemic may affect demand and supply in the economy, and accordingly, price movements. Medium-term inflation trends will also be largely influenced by fiscal policy.