Page 92 - RusRPTNov20

Recent data prints point to the recovery momentum moderating given the difficult situation with COVID-19, which brings more disinflationary risks. CBR forecasts a lower contraction of 4-5% y/y in 2020 (vs. 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.
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.
CBR still sees disinflationary pressures as prevailing in the mid-term. Such risks stem from the second wave of COVID-19, which is weighing on economic activity and outlooks, as well as on the speed of the recovery in both the Russian and global economy. Geopolitical risks (trade wars) and changes in household behavior could also lead to disinflationary risks, promoting a higher propensity to save. The fiscal consolidation could also lead to inflation being lower than 4% y/y in the mid-term.
As was the case in July and September, CBR stated that it would assess the necessity of further cuts at its upcoming meeting. Any cut will depend on the inflation path vs. expectations, economic dynamics and developments in financial markets.
During the press conference, 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, Ms. Nabiullina said.
92 ​RUSSIA Country Report​ November 2020 www.intellinews.com