Page 110 - RusRPTApr21

and the mismatch between rising demand and constrained supply. Deflationary risks could result from borders reopening and therefore alleviating labor supply constraints, as well as from a reversal of the recovery because of another outbreak shock. The mid-term risks are tied to the fiscal policy and the pace of Russia’s fiscal consolidation.
The CBR’s decision was mainly motivated by the inflation shock at home and abroad, which has kept market rates up recently. As a result, CBR has followed the general direction of rates over the past quarter, and analysts do not expect significant moves in interest rates curves or the currency. With that in mind, CBR could proceed with further rate hikes in 2Q21, meaning the key rate could reach 5% by YE21, in our view.
The downside risks to expectations could arise from Russia’s economic recovery slowing down in 2H21. Analysts are concerned that the recovery could stall by 3Q21 without a further fiscal stimulus (e.g. spending NWF funds or additional COVID-19 relief packages for households and businesses), which we could see in the coming months. The low pace of mass vaccinations combined with new COVID-19 strains could also be a risk.
The CBR delivered a clear message that ‘this is as low as rates go’ after the decision to hold the key rate at 4.25% in February. Analysts expect the CBR to remain on hold throughout 2021, before pushing the key rate higher, and settling it into a stable range of 4.5-5.0% in 2022.
(CBR governor Elvira Nabiullina wore a “full stop” broach and has taken to signalling her intentions by wearing a symbolic broach to the post-monetary meeting press conference. Previously there have been “W”, “pause button” and a “red robin” broaches. If you are confused about that last one: every Russian knows that robins are famous for being able to stand very cold weather, which is why they are on Xmas cards.)
110 RUSSIA Country Report April 2021 www.intellinews.com