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Finance that it is using to intervene in the FX markets.
This support means that while the price of oil has collapsed by as much as 75% in April the value of the ruble fell by a modest 17%. The Sberbank funds will run out in around September when the ruble could start depreciating more quickly, but the bet it that by then the price of oil will have recovered somewhat and devaluation/inflation pressures will not be as strong.
Central bank interest rate decisions have been hampered, in particular at recent meetings, by factors driving inflation and the exceptional uncertainty surrounding economic developments.
According to the central bank's forecast, annual inflation accelerated to more than 3% in April. The acceleration in inflation was due to the weakening of the ruble and the peak in demand in retail at the end of March.
According to estimates presented in the research literature, a 10% weakening of the ruble will accelerate consumer price inflation in Russia by about one percentage point within three months.
In March, the nominal trade-weighted exchange rate of the ruble depreciated by 12%. In addition, consumer demand rose momentarily briskly at the end of March as Russians prepared for restrictive measures imposed in the wake of the interest rate pandemic. The central bank estimates that the acceleration in inflation will remain relatively short-lived and that inflation will remain close to the central bank's target of 4% on average this year and next.
According to the central bank's new economic forecast, Russia's GDP is expected to shrink by 4-6% this year and grow by 3-5% next year.
The forecast assumes an average oil price of $27 this year (i.e., an average of $20 in May-December) and $35 a barrel next year. In particular, the central bank expects exports and investment to contract sharply.
The volume of imports is expected to decline slightly more moderately than exports. Indeed, the forecast estimates that Russia's current account will turn into a deficit this year and next for the first time in the 21st century.
84 RUSSIA Country Report June 2020 www.intellinews.com
