Page 39 - RusRPTJul22

requirements for borrowers remain an additional factor of the tightness of credit conditions. When making a decision on the level of the key rate, we take into account the impact of this factor on credit activity and monetary policy transmission. We will also continue to closely monitor trends in time deposits and how they will change after the deposits opened at high interest rates in March and April mature.
I will now speak of possible risks to our forecast. Proinflationary risks continue to go down, while still remaining considerable.
Fiscal policy is becoming expansionary. We factored this in when making our recent decisions. If fiscal policy is eased further, proinflationary pressure might turn out to be stronger than predicted in the forecast. To bring inflation back to the target in 2024, we might need to pursue a tighter monetary policy than we assume today. After the Government approves decisions on the fiscal rule for the next three years, we will be able to assess more accurately the medium-term impact of fiscal policy on the economy and inflation.
Proinflationary risks also include supply-side risks, in our opinion. This is primarily related to manufacturers that are strongly dependent on imports. They are facing unprecedented challenges as they need to rearrange their technological, production, and logistics chains. Without this, they will not be able to replenish the stocks needed for the economy. First and foremost, I mean non-food goods. If the stocks diminish and their replenishment remains difficult, this will limit production capacities and might exacerbate inflationary pressure.
External conditions involve a whole range of risks. The combination of these conditions and their development over time will determine their overall effect on the economy and inflation. These are the major factors of uncertainty. Firstly, the impact of the oil embargo. If Russian oil exports plummet, this will provoke proinflationary pressure due to a contraction of the balance of trade and a weaker ruble. A lot will depend on how much oil the country will be able to redirect to other markets, as well as the extent to which the slump in oil exports will be offset by the price. This in turn will depend on the elimination of infrastructure and logistics problems and the demand for oil in new target markets.
Secondly, the risks of a global recession are growing. If they materialise, the global demand for Russian exports will decrease, which will accelerate inflation through a weaker ruble.
Thirdly, a contraction of Russian exports might also involve disinflationary risks if companies are forced to redirect their products to the domestic market because of the impossibility to establish export chains.
39 RUSSIA Country Report October 2020 www.intellinews.com