Page 85 - RusRPTNov22

Russia takes into account, among other factors, the preponed indexation of utility prices from July 2023 to December 2022. According to the Bank of Russia’s forecast, given the monetary policy stance, annual inflation will decline to 5.0–7.0% in 2023, return to 4% in 2024 and stabilise close to 4% further on.
Monetary conditions remained overall neutral with a slight tightening despite the cut in the key rate in September. This comes largely as a result of growing geopolitical tensions. Against this backdrop, OFZ yields were up, the decline in credit rates came to a halt, and non-price conditions of bank lending tightened. Banks concurrently raised deposit rates in response to the flow of household funds from bank deposits to cash rubles.
Despite elevated inflation expectations and an increased share of the most liquid assets (current accounts and cash rubles) in the structure of savings, households maintained a high propensity to save.
Overall lending grew at a high pace. Lending gained support from both the key rate reduction since spring and government-subsidised lending programmes. However, signs emerged in October of a slowdown in credit activity including in the context of the tightening in non-price bank lending conditions, particularly in the retail segment.
Economic activity. High-frequency indicators point to stronger dynamics of business activity in the third quarter than the Bank of Russia expected. A growing number of enterprises are adjusting to operate under external trade and financial restrictions. This is facilitated by a gradual diversification of suppliers of finished products, raw material and components, as well as by import substitution processes and forays into new markets including a refocus on domestic consumers.
At the same time, surveys show that a significant proportion of enterprises are still confronted with difficulties in production and logistics. Also growing are restrictions in the labour market, driven in part by the partial mobilisation. While the partial mobilisation may mainly create disinflationary pressure in the coming months due to subdued consumer demand, its subsequent effects will be pro-inflationary as it adds to supply-side restrictions in the broader economy.
In September, business and consumer sentiment slightly worsened due to a rise in overall uncertainty. In these conditions, the recovery of consumer activity, which remains restrained, slowed down. Concurrently, domestic demand was supported by fiscal policy measures, in particular by increased demand from the public sector.
In its baseline scenario, the Bank of Russia forecasts a GDP contraction of 3.0–3.5% in 2022. In 2023, the GDP growth rate will remain negative at
85 RUSSIA Country Report November 2022 www.intellinews.com