Page 60 - RusRPTJul23

4% in 2024.
At the last CBR monetary meeting on June 9 the CBR said: “The medium-term balance of inflation risks has tilted even more to the upside.
Meaningful pro-inflationary risks are related to geopolitical tensions affecting foreign trade terms. As a result, increasing foreign trade and financial restrictions can further weaken demand for Russian exports, contributing to inflation through exchange rate movements. Moreover, the increasing complexity of production, supply chains and payments due to external restrictions could lead to both higher import prices and more severe supply-side constraints in the Russian economy. A deterioration in the global economic growth outlook can also have significant short-term pro-inflationary effects, in particular given volatility in foreign financial markets.
The Bank of Russia’s baseline scenario is based on the decisions already made regarding the mid-term expenditure path of the federal budget and the fiscal system as a whole. In case of a further expansion in the budget deficit, pro-inflationary risks will increase and tighter monetary policy may be required to return inflation to target in 2024 and keep it close to 4% further on.
Pro-inflationary risks from the labour market are intensifying. Significant labour shortages may lead to labour productivity growth lagging behind growth in real wages.
High and unanchored inflation expectations, which are particularly sensitive to exchange rate fluctuations, are also a source of risk. In these conditions, the impact on prices from the weakening of the ruble since the beginning of the year can be more pronounced than expected in the baseline scenario. In addition, accelerating growth in lending and a significant decline in the savings rate could set the stage for a more rapid expansion of consumer demand that would outstrip the capacity to expand production.
A disinflationary risk for the baseline scenario is the continued high propensity of households to save amid increased general uncertainty as households take time to adapt to a new supply structure in consumer markets. A growing risk premium in bond yields and lending rates may additionally tighten monetary conditions, which will restrain lending in the economy. A disinflationary effect may also be caused by a faster adjustment of the economy, accompanied by an active recovery of imports among other things. Significant harvest carryovers from 2022 may in turn reduce even more prices in the coming quarters.
Moving forward, in its key rate decision-making the Bank of Russia will take into account actual and expected inflation dynamics relative to the target and economic transformation processes, as well as the risks posed by domestic and external conditions and the reaction of financial markets. In the context of
60 RUSSIA Country Report July 2023 www.intellinews.com