APRIL 2020

Monetary Policy Report

The key rate was cut,
the Bank of Russia switched
to accommodative policy

Inflation forecast
for the year-end 2020

The key rate
may be cut further

The economic development forecast has been substantially revised

The three major events that have affected the situation the most are largely associated with the coronavirus pandemic:

  • the implementation of restrictions and the downturn in the global economy
  • another round of a slump in oil prices, despite the new OPEC+ deal
  • the introduction of anti-pandemic restrictions in Russia.

A positive aspect is a slight stabilisation in global financial markets as compared to March, which has been largely driven by measures being implemented by the central banks of reserve-currency countries.

The economic situation will be gradually returning to normal

GDP growth rate, YoY

It is expected that governments will be gradually lifting or considerably easing the majority of the current restrictions in the second quarter. In this case, we can expect that in the third and fourth quarters the economic activity will be recovering quarter-over-quarter.

However, a full recovery of GDP will take time. GDP will shrink year-over-year in the third and fourth quarters, generally declining by 4–6% over 2020. The major contributor to this reduction will be a shrinkage of exports that may reach from 10% to 15%. Moreover, fixed capital investment will also substantially decrease (by 6–10%) compared to the previous year.

Economic growth in 2021–2022 will largely be recovery-type. The economy will grow by 2.8–4.8% in 2021 and by 1.5–3.5% in 2022. GDP growth will be promoted by a further implementation of national projects. An upturn in the economy and domestic demand will also be driven by the easing of monetary conditions resulting from the monetary policy stance

Inflation will reach 3.8-4.8% in 2020 and will stabilise close to 4% further on

Inflation and BoR key rate, YoY

The shrinkage of domestic and external demand this year will considerably constrain inflation. This will be inducing the risk of its substantial deviation downwards from the target in 2021 and over a medium-term horizon if no additional monetary policy measures are taken.

The disinflationary pressure of weak demand will offset already this year the effect of temporary pro-inflationary factors, that is, the weakening of the ruble and the previously observed increased demand for certain products. The rise in inflation expectations caused by the above factors is also estimated to be temporary.

Inflation trends are expected to reverse in the middle of the year. Annualised monthly inflation will begin to go down, although annual inflation will still continue to rise.

Key rate decisions and decreasing OFZ yields will promote the easing of monetary conditions

OFZ yields and the Bank of Russia key rate, %

In April, yields on federal government bonds (OFZ) declined, coming close to the levels recorded this February. This was supported by the Bank of Russia’s measures aimed at maintaining financial stability and a lower volatility in global financial markets that decreased, among other factors, owing to central banks’ measures.

In the future, the easing of monetary conditions resulting from the monetary policy stance will contribute to economic recovery and an upturn in domestic demand. This will support lending, and its growth rate will rise from 3–8% this year to 6–11% in 2021–2022.

Disinflationary risks are mostly associated with the uncertainty about pandemic spread trends

Disinflationary risks for the baseline scenario are primarily associated with the uncertainty about pandemic spread trends in Russia and generally in the world, the scale of possible anti-pandemic measures and their influence on economic activity, as well as the recovery pace of the Russian and global economies after restrictions are cancelled.

Short-term pro-inflationary risks that may be caused by a potential more significant pass-through of the ruble depreciation to prices and the episodes of elevated demand for individual product groups have decreased. However, disruptions in logistics chains induced by the restrictions in place may put localised upward pressure on prices.

When making its key rate decision, the Bank of Russia also considered the objective of maintaining financial stability, especially in the context of an unsteady environment in international commodity and financial markets.


If the situation develops in line with the baseline forecast, the Bank of Russia holds open the prospect of further key rate reduction at its upcoming meetings. In its key rate decision-making, the Bank of Russia will take into account actual and expected inflation dynamics relative to the target and economic developments over the forecast horizon, as well as risks posed by domestic and external conditions and the reaction of financial markets