Page 47 - RusRPTMay21

mid-April, according to SberIndex.
Since the base effects should be surpassed by 3Q21, we expect the economy’s recovery to slow in 4Q21-1H22, shifting its potential trajectory of growth of c. 2% if the investment outlook does not change dramatically following the unwinding of structural reforms.
The economy could experience a quite sharp fiscal consolidation, with the non-oil federal budget deficit shrinking by c. 1% of GDP in 2021-22 after expanding by 3.3% of GDP in 2020. Should Putin announce significant social outlays and an infrastructure stimulus, this could shift the balance of risks even more towards a tighter fiscal stance.
Russia’s Ministry of Economy says the CBR is too conservative. After Russia’s central bank (CBR) raised its key interest rate to 4.5% on March 19, metals tycoon Oleg Deripaska called the move an “attack on Russians’ incomes and companies’ profits.”
Deripaska has long criticized the CBR’s conservative monetary policy. But there’s now another prominent detractor from the CBR’s rate hike decision. Economy Minister Maxim Reshetnikov, who has been tasked with tackling food price inflation, told journalists last week that he didn’t agree with the CBR’s policy choice. According to Reshetnikov, the CBR is trying to combat inflation, which rose to 5.8% in mid-March, using monetary tools, but Russia’s current inflation problem is not monetary. That is, prices are not rising because there’s too much money floating around in the economy. Rather, the inflation stems from external factors like the continued growth of global agricultural prices.
MinEk’s latest inflation bulletin claims that while annual food inflation grew from 7% in January to 7.7% in February, monetary inflation remains notably lower, rising from 4.1% to 5% in the same period (see chart below). Other tools are necessary to combat this type of non-monetary price growth, Reshetnikov explained.
In addition to disagreeing about the nature and method of combatting Russia’s current inflation, Reshetnikov also objected to the CBR’s concern that fiscal easing may lead to a rise in prices. According to the economy minister, the government is not planning any serious relaxation of budgetary policy. Expenditures will remain unchanged this year.
Given these two areas of disagreement, Reshetnikov fears that the result of the CBR’s rate hike will simply be a dampening of Russia’s economic recovery. What policymakers need to focus on, he said, is translating Russians’ savings during the pandemic into economic growth. In 2020, savings increased by 5 trillion rubles ($65.7 billion). Reshetnikov wants to see these funds directed toward investments. But with higher interest rates, the cost of loans increases and the appetite for investment decreases accordingly.
47 RUSSIA Country Report May 2021 www.intellinews.com