Page 105 - RusRPTAug22

Europe where inflation has already passed its peak and is now falling. The CBR revised its year-end inflation forecast lower for the second consecutive meeting, from 14-17% year on year to 12-15% y/y.
The rate cut will also help to weaken the ruble, which has become painfully strong in the wake of super earnings from raw materials and weak consumer demand. The cut was also motivated by falling inflation expectations that were running very high before the war started.
The head of the CBR, Elvira Nabiullina, at a press conference following the aggressive key rate cut said that economic conditions have turned “favourable”, with price pressures easing for nine weeks in a row. The head of the CBR sees recovery in imports, especially with consumer goods, as alternative supply channels are being developed. However, investment imports are yet to show any recovery.
Nabiullina also believes that consumption could recover as fast as after the coronavirus (COVID-19) lockdowns, when the population has sharply cut spending at first, only to restart it in the short term. “Today's savings accumulation is a compressed spring in the economy," she said.
While Nabiullina indeed said that the recession in 2022 will be milder than expected, she warned that the economic decline will be more protracted and lengthy. She also addressed the cut being more aggressive than the broad expectations and said that the “regulator was basing the decision on data available to the market” and was witnessing a “broad-based consumer price decline”.
While the analysts now see smaller room for further rate cuts, Nabiullina still believes there is further potential for them.
"There are no red lines for [key interest] rate decisions either on the upper or the lower range for us,” she said, as cited by RBC business portal. “The [key interest] rate will be chosen based on the trajectory that should ensure inflation returns to the target in 2024," Nabiullina said, referencing the 4% inflation target by 2024.
“The central bank clearly did not feel the need to slow the pace of rate cuts given the easing of inflation risks and the extent of the hit to economic activity. It maintained its guidance that it will consider the necessity of further rate cuts. That said, we think further cuts will be more gradual going forward. Russia’s 12-month ahead
105 RUSSIA Country Report October 2020 www.intellinews.com