Page 14 - RusRPTMay20
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2019), which would translate into 3.1-3.2% year-on-year growth, up from 2.5% y/y in March," Sberbank CIB estimated this week.
The bank expects the current inflationary surge caused by a combination of ruble depreciation and increased demand for food and essentials to continue in April-May, and then stabilise and finish the year close to the CBR's target of 4%, as weak domestic demand should constrain price growth.
DemandandeconomysubduedAsreportedbybneIntelliNews, recent reports warned that in addition to a dive in real disposable income (that has just recovered to slight growth in 2019), consumer demand mght take up to three years to recover its pre-COVID levels.
The CBR sees risks of serious decline in economic activity this year, projecting a 4-6% GDP decline in 2020, which is more conservative than the current consensus expectations of 3-5% recession this year.
"The depth of the forecasted GDP decline of 4-6% was the biggest surprise for us [in the CBR announcement]," Renaissance Capital commented on April 24, noting that this opens up more space for further rate cuts, should inflation remain under control.
The CBR's readiness to cut the key interest rates by 50bp and the clear guidance for further cuts also shows that the regulator is not concerned with increased spending on its anti-crisis package as posing strong inflationary risks.
Finance Minister Anton Siluanov recently estimated the fiscal stimulus at RUB3.1 trillion ($41.6bn) or 2.8% of GDP, and argued that not cutting the spending amid a drop in oil prices actually puts the support measures at over 6% of GDP. Up to RUB2 trillion extra borrowings could be taken on by the government this year.
Guidance for next cuts Previously facing the pressure from international sanctions, Nabiullina's prudent strategy was famously "better hike [the rate] a little now than much later". Now being on the flipside and given the need to stimulate the economy, the CBR readily reversed its stance and started to front-load cutting interest rates.
Still, as "oil price and ruble weakness in recent weeks have weighed a bit, and held the CBR back from completely throwing in the towel with a triple-digit move as per the SARB, CBRT and even the NBU," Tim Ash of Bluebay Asset Management commented on April 24.
The analysts surveyed by Vedomosti d aily believe that CBR has sent a clear signal that it will take anti-crisis action through monetary policy and expect the key interest rate to be cut further to at least 5%. Capital Economics analysts told Reuters that a cut to 4.5% is seen as possible.
Fitch Rating in the most recent update of the Global Economic Outlook predicted Russian inflation of 3.9% in 2020, GDP decline of 3.3%, and the CBR cutting the key interest rate to 5.25% by the end of the year.
The CBR expects a bounceback in the GDP to 2.8-4.8% growth in 2021, with growth moderating to 1.5-3.5% in 2022. The regulator bases the estimates at $27 per barrel of Urals oil for 2020, rising to $35 and $45 in 2021 and 2022 respectively.
14 RUSSIA Country Report May 2020 www.intellinews.com
