Page 111 - RusRPTJan21

risks in 2021.
In the accompanying press-release the CBR noted the improving external outlook due to positive expectations on COVID vaccine. In 2020 the central bank expects an economic contraction of 4%, with recovery to growth seen in 2Q21 after taming COVID-19 and recovering consumer demand.
The analysts surveyed by ​Vedomosti​ daily believe that the CBR will maintain the key interest rate unchanged at least until mid-2021.
Kommersant​ daily noted that the CBR has changed the formulation of its intentions in the press-release from "evaluating the appropriateness of interest rate cut" to "evaluating the potential for further interest rate cuts", which is seen as a signal of a more prudent stance in the short-term.
The CBR said that it does not think deflationary risks will be as significant in 2021 as it did during its previous meeting due to inflationary risks and their secondary effects.
Although consumer price inflation (CPI) is still expected to moderate to 3.5-4% y/y by YE21, CBR seems less convinced of this outcome, said analysts at Sova Capital.
● CPI was revised upwards from 3.8-4.2% y/y to 4.6-4.9% y/y by YE20 due to the impact of short-term one-off factors. Increased prices in specific categories and the continued pass-through of the ruble’s weakness to consumer prices will offset the disinflationary effects of subdued demand. CBR is concerned that such one-off inflationary factors could have a long-term impact on expectations and momentum.
● CBR still sees disinflationary factors as having some effect in 2021, albeit less than previously expected. Inflation could be within the anticipated range of 3.5-4% y/y by YE21.
● The monetary conditions have not changed significantly since the October decision, as interest and deposit rates have stabilized as loan growth has continued. Mid-term OFZ yields improved on the back of expectations of the global economic recovery and improvements on the commodity market. The withdrawal of regulatory relaxations could be key for monetary conditions next year.
● The high-frequency indicators point to a pause in the recovery in economic activity in 4Q20. However, the worsening COVID-19 situation has had much less of an impact on economic dynamics compared to 2Q20.
● CBR still expects GDP to contract 4% y/y, while the economic recovery is expected to start in spring 2021 due to a better outlook on
111 ​RUSSIA Country Report​ January 2021 www.intellinews.com