Page 102 - RusRPTNov23

pressure has intensified, also because of the pass-through of the ruble weakening to prices. Over the last three months, the current price growth totalled 9.0% on average in annualised terms on a seasonally adjusted basis. The same measure of core inflation rose to 8.4%.
Higher inflationary pressure is seen across an increasingly broader range of goods and services. Growing domestic demand exceeds the output expansion capacity. High domestic demand has been an important factor behind the ruble’s depreciation via elevated demand for imports.
The pass-through of the ruble weakening to prices is speeding up due to high inflation expectations. Price expectations of businesses have increased most significantly in recent months. Households’ inflation expectations have also risen. Analysts’ inflation expectations for 2023 and 2024 have increased as well, but they are anchored close to 4% for the medium term.
According to the updated forecast of the Bank of Russia, annual inflation will range from 6.0% to 7.0% in 2023. The Bank of Russia’s monetary policy will limit the upward deviation of inflation from the target. Given the monetary policy pursued, annual inflation will return to 4% in 2024 and stay close to 4% further on.
Monetary conditions began to tighten following the key rate increases in July—August. Interest rates in the credit and deposit market have risen. Higher nominal interest rates have had a minor effect on lending amounts as yet. This is predominantly due to the fact that monetary policy impacts the economy and inflation with time lags.
Short-term OFZ yields have risen significantly since the Bank of Russia Board of Directors’ unscheduled meeting. The OFZ curve has flattened. This shows that current monetary conditions are moderately tight.
Lending activity remained high in both corporate and retail segments. This is partly associated with new loans issued by banks on previously approved terms. The inflow of household funds into credit institutions remained stable. However, some funds were transferred from current accounts to time deposits.
The large volume of existing government subsidised lending programmes, especially in the mortgage market, slightly reduces the impact of the key rate decisions on the lending dynamics. Taking into account rising inflation expectations and remaining levels of nominal rates, such programmes become more attractive to borrowers. All else being equal, this means that a tighter monetary policy is required to maintain price stability.
The key rate decision made by the Bank of Russia will speed up the formation of monetary conditions needed to ensure balanced growth in lending and
102 RUSSIA Country Report November 2023 www.intellinews.com