Page 123 - RusRPTJul22

Analysts widely expect the bank to cut rates again at the July meeting, but going forwards the cuts are likely to be more modest in 50bp steps. The CBR aims to reduce the rate to 4% by 2024.
Inflation movements. Current inflation is appreciably below the Bank of Russia’s April forecast. As of 3 June, annual inflation is down to 17.0% (vs 17.8% in April). Based on the latest data, growth rates of consumer prices have been low in May and early June.
The decline in headline inflation is largely due to a correction in prices for a small group of goods and services, after they went up sharply in March. This comes as a result of ruble exchange rate movements and the tailing-off of the surge in consumer demand in the context of a marked decline in inflation expectations of households and businesses. At the same time, current rates of price growth in the greater part of the consumer basket, although having dropped, are still significantly above 4% annualised.
The Bank of Russia’s baseline scenario expects annual inflation to run at 14.0–17.0% by the end of 2022. Inflation movements will be shaped including by such impactful factors as the efficiency of import substitution processes and the scale and speed at which imports of finished goods, raw materials and components will be recovering. According to the Bank of Russia’s forecast, given the current monetary policy stance, annual inflation will reduce to 5.0–7.0% in 2023 to return to 4% in 2024.
Monetary conditions are overall tight, having softened unevenly across various segments of the financial market. OFZ yields and interest rates in the credit and deposit market have turned downwards. With deposit rates dropping, the inflow of funds into term ruble deposits has slowed. At the same time, price and non-price bank lending conditions have remained rigid on the back of a higher risk premium factored into lending rates and tighter borrower requirements of banks. This leaves retail and corporate lending operations weak. Credit gained support from government-subsidised lending programmes.
The Bank of Russia’s decisions in April-June to reduce the key rate will boost the availability of credit resources in the economy and limit the scale of economic decline. At the same time, the monetary policy stance will retain its necessary disinflationary impact to bring inflation back to target in 2024. The Bank of Russia forecasts that the key rate will average 10.8—11.4%1 in 2022, 7.0–9.0% in 2023 and 6.0–7.0% in 2024.
123 RUSSIA Country Report October 2020 www.intellinews.com