Financial Sector Overview
Bank of Russia RUSSIAN MACRO UPDATE
The Central Bank of the Russian Federation
20
MONETARY POLICY
Short-term proinflationary risks have abated compared to March
Inflation and inflation expectations
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Annual inflation slowdown is continuing. CPI declined in May to 5.1% YoY and stood at 5.0% YoY as of 10 June.
Starting in February, MoM SA consumer price growth has remained close to 4% (annualised).
In May, households' and business inflation expectations did not materially change and remain elevated.
The Bank of Russia has lowered its end-of-year annual inflation forecast for 2019 from 4.7-5.2% to 4.2-4.7%.
The revised forecast takes into account the completion of the VAT increase pass-through to prices (including
the influence of secondary effects) and the preservation of relatively favourable external conditions and
moderate dynamics of domestic demand.
Moving on, according to the Bank of Russia's forecast, annual inflation will stay close to 4%.
Monetary conditions:
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Monetary conditions have somewhat eased since the last Board meeting.
OFZ yields and deposit rates have declined. The potential for lending rates growth has mostly exhausted.
The Bank of Russia's decision to cut the key rate and the year-to-date decline in OFZ yields create conditions
for the decline of deposit and lending rates in the future.
Economic activity
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Economic growth in 1H 2019 is lower than the Bank of Russia's expectations.
During the first four months of 2019, the growth in general government income outperformed the growth in
expenses, which, in part, is due to the shift to 2H 2019 of the implementation of a number of national projects.
Taking into account GDP growth statistics for 2018 - 2019 Q1 published by Rosstat, the Bank of Russia
lowered its GDP growth forecast for 2019 from 1.2-1.7% to 1.0-1.5%.
Internal risks
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The effects of the VAT hike have fully materialised (↓)
Elevated and unanchored inflation expectations
Medium-term fiscal policy parameters
Moderate risks - estimates are mostly unchanged:
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Wage movements
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Prices of individual food products
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Possible changes in consumer behavior
External risks
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Risks of persistent capital outflows from
emerging markets (↓)
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Slowdown in global economic growth
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Geopolitical factors
The volatility of global oil prices
Decision
as of June 14, 2019
The Bank of Russia
cuts the key rate by 25 bp
to 7.50% p.a.
Signal
"...If the situation develops in line
with the baseline forecast, the
Bank of Russia admits the
possibility of further key rate
reduction at one of the upcoming
Board of Directors' meetings and
a transition to neutral monetary
policy until mid-2020.
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
developments over the forecast
horizon, as well as risks posed by
domestic and external conditions
and the reaction of financial
markets..."View entire presentation