Bank of Russia identifies main risks for its baseline scenario

MOSCOW, RUSSIA - MARCH 20, 2020: An outside view of the Central Bank of Russia. The Russian ruble has strengthened against the US dollar and the Euro in Moscow Exchange trading over the decision of the Central Bank of Russia to keep its key interest rate at 6% per annum. As of the morning of March 20, 2020, the Russian ruble has strengthened 1.5% against the US dollar which is trading at 77.98. Gavriil Grigorov/TASS

The uncertainty of the baseline scenario presented earlier by the Bank of Russia remains extremely high, the regulator believes. Thus, the scenario significantly depends on the development of geopolitical factors, as well as on the ability of the economy to adapt to new conditions, the Bank of Russia said.

At the same time, pro-inflationary risks prevail in the mid-term, “although their influence has decreased compared to the end of February,” the Bank of Russia noted. Among the main risks, the regulator pointed to further strengthening of external trade and financial restrictions, a more significant decline in the potential of the Russian economy than was expected in the baseline scenario, as well as an increase in inflation expectations.

The dynamics of the ruble exchange rate will also remain a significant factor influencing the dynamics of inflation and inflationary expectations.

The main disinflationary risks in the baseline scenario include further tightening of monetary conditions due to the persistence of a high-risk premium in lending rates and increased requirements of banks to borrowers amid high uncertainty. “This together could lead to a more significant slowdown in lending activity,” the regulator explained. These risks also include faster recovery in supplies against maintaining a high savings rate and low consumer activity, they added.

At its previous meeting in April, the Bank of Russia significantly revised its medium-term forecast. Thus, according to the regulator, Russia’s economy in 2022 will shrink by 8-10% in 2022, in 2023 – within 0-3%. The Bank of Russia expects the economy to return to growth in 2024. Inflation in Russia in 2022 will grow to 18-23%. The rate will decline to 5-7% in 2023 and return to 4% in 2024. -TASS