Page 91 - RusRPTNov20

The CBR maintained its guidance on the key rate, as it has in its past several meetings, noting “the necessity of a further key rate reduction at its upcoming meetings”.
The CBR expects the short-term risks to remain predominantly inflationary, as they are tied to the volatility of global financial markets, geopolitical risks and temporary disruptions in supply chains.
The central bank now forecasts a lower contraction of 4-5% year on year in 2020 (versus 4.5-5.5% y/y in July) and a less pronounced recovery in 2021-22 (2.5-3.5% y/y and 2-3% y/y respectively). The fiscal consolidation, COVID-19 outbreak and slower-than-expected resumption of consumer and producer activity could weigh on any further bouncing, the CBR commented.
"We believe the risk of domestic turmoil on the back of a second wave of lockdowns (disinflationary risks) in tandem with a global downturn, geopolitical risks and inflationary pressures and expectations could keep [the] CBR from realising its rate-cutting potential in December," Sova Capital commented on October 23.
During the press conference following today’s meeting, CBR Governor Elvira Nabiullina mentioned the adverse impact of additional rate cuts during high volatility episodes, as such cuts could destroy interest rate buffers and even increase market rates.
Mid-term disinflationary risks open the door for a shift in policy rates to persistently lower levels in 2021-22, Nabiullina said.
The rationale for CBR’s decision was:
Inflation has been in line with CBR’s expected trajectory, pushed to the upside by the weaker ruble and to the downside by the slower economic recovery. YE20 CPI is seen at 3.9-4.2% y/y, and current inflationary processes advocate for a target of c. 4% for consumer price growth. Both consumer and producer inflation expectations have surged due to the ruble’s volatility. Mid-term expectations call for subdued inflation (3.5-4% y/y by YE21) since the recovery in growth remains moderate.
Monetary conditions have continued to ease since the CBR decision in September. OFZ yields narrowed thanks to some stabilization on financial and commodity markets. Monetary policy easing, coupled with subsidized programs, affected loan rates and facilitated the recovery in lending. CBR thinks the economy needs time to adapt to the new environment.
91 ​RUSSIA Country Report​ November 2020 www.intellinews.com