Russian Financial Sector Update

Bank of Russia RUSSIAN MACRO UPDATE The Central Bank of the Russian Federation 22 22 MONETARY POLICY Gradual transition from moderately tight to neutral monetary policy Inflation and inflation expectations • • • Annual inflation remains low and in general corresponds to the Bank of Russia's expectations, but shows mixed dynamics for main consumer basket products (petrol 1, food goods ↓) A majority of annual inflation indicators reflecting the most sustainable price movements suggests that inflation is gradually returning to the target Petrol price movements affected inflation expectations which continued to rise in June Annual inflation will temporarily overshoot 4% in 2019 due to the planned increase of the value added tax Monetary Conditions are close to neutral Economic activity • The updated Rosstat data reflects steadier economic growth in 2017 - early 2018 than previous estimates . Medium-term outlook on economic growth is at large the same, but might be further updated to reflect a detailed estimate of influence of the set of the proposed fiscal measures Decision as of July 27, 2018 The Bank of Russia keeps the key rate at 7.25% p.a. Signal "...In making its key rate decisions the Bank of Russia will assess inflation risks, inflation dynamics and economic developments against the forecast. The Bank of Russia considers that monetary policy is highly likely to shift to a neutral stance in 2019..." • Inflation risks The main risks: (1) the scale of secondary effects of the adopted tax decisions, (2) external factors Moderate risks – estimates are mostly unchanged: (3) consumer and oil price volatility, (4) wage movements, (5) possible changes in consumer behavior.

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