RUSSIA'S ECONOMIC OUTLOOK AND MONETARY POLICY
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RUSSIA’S ECONOMIC OUTLOOK AND MONETARY POLICY JULY 2020
2
Global financial and commodity markets
CDS of EMEs Ruble exchange rate (USD/RUB) and Urals
In June-July the situation in (change on 02.01.2017 bp) price (USD/bbl) dynamics
the financial and commodity 150 90 55
markets remained overall
stable.
Risk premiums have 100 75 60
decreased.
Oil prices have returned to 50 60 65
$40+/bbl.
The strengthening of the
ruble since April largely 0 45 70
offset its depreciation in
March containing the
upward pressure of the -50 30 75
exchange rate on consumer
prices.
-100 15 80
-150 0 85
2017 2018 2019 2020 2017 2018 2019 2020
All EMEs (excluding Argentina)
Urals USDRUB, rhs
Stable EMEs
Russia
Sources: Reuters, Bloomberg, Bank of Russia calculations3
Consumer prices
Jun,
Δ, p.p. Inflation by main groups, core inflation (% YoY)
YoY, %
11 and the Bank of Russia key rate (% p.a.)
CPI, headline 3.2 +0.2
CPI, core 2.9 0.0 10
Median 2.4 0.0 9
Inflation this year and in the 8
first half of 2021 will be largely
influenced by a steep decline 7
in domestic and external 6
demand occurred in the
second quarter. The 5
disinflationary impact of weak
demand is caused by the 4.25
4
economic effects of
restrictions. 3 3.2
In the context of prevailing 2
disinflationary factors there is
a risk that in 2021 inflation 1
might deviate downwards from
the 4% target. The significant 0
easing of monetary policy
since April aims at curbing this -1
risk and stabilising inflation 2017 2018 2019 2020
close to 4% over the forecast
horizon. CPI, core CPI, headline Food goods Non-food goods Services Key rate
Sources: Rosstat, Bank of Russia4
Inflation rates for main groups, seasonally adjusted (1)
CPI, excluding fruit and vegetables,
MoM All goods and services
oil products and utility services
June 2020, % YoY 10 10 10 10
SAAR 9 9 9 9
All 3.2 2.8 8 8 8 8
7 7 7 7
- ex. F&V, oil 6 6 6 6
3.2 4.9 5 5 5 5
prod. and util.
4 4 4 4
Food 3.9 4.9 3 3 3 3
2 2 2 2
- ex. F&V 3.6 5.2 1 1 1 1
0 0 0 0
Annual inflation increased to -1 -1 -1 -1
3.2% in June vs 3.0% in May, 2017 2018 2019 2020 2017 2018 2019 2020
which is largely explained by a
base effect, primarily in Food goods Food goods, excluding fruit and vegetables
movements of prices for fruit 20 20 20 20
and vegetables. 18 18 18 18
16 16 16 16
The consumer prices in June 14 14 14 14
were heterogeneous. This 12 12 12 12
was caused, among other 10 10 10 10
things, by the gradual and 8 8 8 8
uneven recovery of goods and 6 6 6 6
services supply as well as by 4 4 4 4
deferred demand given the 2 2 2 2
0 0 0 0
step-by-step easing of the -2 -2
-2 -2
lockdown regime. -4 -4 -4 -4
2017 2018 2019 2020 2017 2018 2019 2020
Columns – monthly price growth rate, seasonally adjusted, %
Line – annual inflation, % (rhs); thin line – 3MMA SAAR
Sources: Rosstat , Bank of Russia’s estimates Red line – 4% SAAR5
Inflation rates for main groups, seasonally adjusted (2)
MoM
June 2020, % YoY
SAAR Non-food goods Non-food goods, excluding oil products
10 10 10 10
Non-food 3.0 4.6 9 9 9 9
8 8 8 8
- ex. petrol 3.2 3.9 7 7 7 7
6 6 6 6
Services 2.5 -1.9
5 5 5 5
- ex. utilities 2.4 -4.9 4 4 4 4
3 3 3 3
Short-term pro-inflationary 2 2 2 2
risks might also be connected 1 1 1 1
with a more sizeable deferred 0 0 0 0
demand for goods and 2017 2018 2019 2020 2017 2018 2019 2020
services.
Services Services, excluding utility services
According to Bank of Russia 10 10 10 10
estimates, monthly inflation 9 9 9 9
indicators reflecting the most 8 8 8 8
7 7 7 7
sustainable price movements 6 6 6 6
are close to or below 4% 5 5 5 5
(annualised). Seasonally 4 4 4 4
adjusted monthly growth rates 3 3 3 3
2 2 2 2
continued to decline in June 1 1 1 1
and will remain low till the 0 0 0 0
year-end amid subdued -1 -1 -1 -1
-2 -2 -2 -2
demand. -3 -3 -3 -3
-4 -4 -4 -4
2017 2018 2019 2020 2017 2018 2019 2020
Columns – monthly price growth rate, seasonally adjusted, %
Line – annual inflation, % (rhs); thin line – 3MMA SAAR
Sources: Rosstat, Bank of Russia’s estimates6
Price expectations – businesses
Replies of businesses to the question: “How will the
Jun May Δ, pp PMI survey data on producer input and prices of final goods change in the upcoming 3
output prices, diffusion index, pp months (increase/decrease)?”, balance of replies, %
PMI Mng Input SA
58,8 59,8 -1,0
Prices 75 40
PMI Mng Output
51,6 53,2 -1,6
Prices 35
PMI S Input 70
55,9 54,4 1,5 30
Prices
PMI S Output
49,7 48,4 1,3 65 25
Prices
The effects from sharp inflation 20
acceleration ran their course in 60
March-April. 15
Bank of Russia’s survey suggest 10
that price expectations for the 55 54,0
next three months remained 5
almost unchanged. PMI price 50
indices suggest that price 0
expectations reverted to levels 2016 2017 2018 2019 2020
observed in 2017-early 2018, but 45
Mining and quarrying
are somewhat higher than early 2016 2017 2018 2019 2020 Manufacturing
Agriculture
2020 readings. Input Prices Output Prices Construction
PMI Mng
Wholesale and retail trade
PMI Services
Average . Transportation and storage
Services
Businesses - total
Sources: Bank of Russia’s business survey, IHS Markit7
Leading output indicator
The recovery pace in the
economy and price dynamics Contribution to annual growth, pp
will remain non-uniform over 8
the next few months. 6
The economy will be 4
returning to its potential
2
progressively, and therefore
disinflationary trends will 0
prevail.
-2
According to the Bank of
-4
Russia GDP will decrease by
4.5-5.5% in 2020. The -6
Russian economy is
thereafter expected to follow -8
a recovery path with growth -10
predicted to total 3.5-4.5% in 2016 2017 2018 2019 2020
2021 and 2.5-3.5% in 2022. Добыча
Mining
Обработка
Manufacturing
Сельское
Agricultureхозяйство
Строительство
Construction
Транспорт
Freight turnover
Розничная
Retail tradeторговля
ЭГВ и прочее
Electricity, gas, water, and other
Опережающий
Leading output индикатор
indicator, %выпуска, %
Опережающий
Leading output индикатор
indicator, %выпуска,
3MMA % 3mma
Sources: Bank of Russia8
Industrial production and Investment activity
In June, the decline in Industrial output,
Investment activity indicators,
contribution to annual growth, pp
industrial production slowed % YoY
8 30 60
down.
6
Proxy indicators suggest a 20 40
slight rebound in investment 4
activity. 2
10 20
0
-2 0 0
-4
-10 -20
-6
-8
-20 -40
-10
-12 -30 -60
2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020
Добыча
Mining полезных
and quarryingископаемых
Fixed capital investment (Bank of Russia
Обрабатывающие производства
Manufacturing estimate)
Fixed capital investment (quarterly)*
Электроэнергетика
Electric и пр.***
power and other
Расхождение
Difference Rail transportation of constraction materials
Календарный
Calendar factor фактор
Investment goods production
Промышленное
Industrial производство,
production, % %
Промышленное
Industrial производство
production, с искл.
excl. calendar factor % Machinery and equipment imports from
календарного фактора, % non-CIS countries, rhs
* In % to the corresponding period of the previous year
Sources: Rosstat, Bank of Russia calculations9
Consumer demand and household incomes
Recovery continues in retail Consumer demand,% YoY Household real disposable money income,
trade and the services 10 contribution to annual growth, pp
6%
sector. The fiscal policy
actions support 5 4%
consumption. 2%
0
Persistent changes in the 0%
households’ preferences and -5
behaviour together with -2% -2,3%
higher propensity to save -10 -4%
might also exert a -6%
constraining influence on -15
inflation. -8% -8,0%
-20
Further economic recovery -10%
-25 2016 2017 2018 2019 2020
might be unstable due to a
Обязательные платежи
Mandatory payments andиcontributions
взносы (excl. interest on
fall in incomes, frugal (кроме
loans) % по кредитам)
-30 Проценты
Interest onпо кредитам
consumer behaviour, loans
cautious sentiment of -35 Прочие денежные
Other earnings поступления
(including undisclosed
businesses and external (вкл. скрытые доходы)
Доходы отincome
Property собственности
demand-side constraints. -40
2016 2017 2018 2019 2020 Социальные выплаты
Social benefits
Enterpreneurial
Доходы income
от предпринимательства
Non-food goods, pp
Labourтруда
Оплата remuneration
наемных (including undisclosed)
работников
Food goods, pp
(вкл. скрытую оплату)
Retail turnover Реальные располагаемые
Real disposable доходы,
money income, % % г/г
Amount of paid services to households Реальные располагаемые
Real disposable доходы,
money income, % г/г undisclosed)
% (excl. (без скрытых
доходов)
Sources: Rosstat, Bank of Russia’s estimates10
External demand and import
In June, the contraction of PMI Manufacturing Export, import and the price of “Urals”, %
volume of orders in both YoY
58 55
external and domestic
markets slowed down. 54
At the same time, weak 35
50
external demand coupled
with restrictions under the 46 15
OPEC+ deal lead to a drop in
exports, causing an adverse 42
effect on economic activity. -5
38
A more prolonged decline in
services imports took place 34 -25
in Q2 2020 due to closed
borders, suspended travel 30
services and the switch to -45
domestic consumption. 26
22 -65
II Q 2018
II Q 2019
II Q 2020
III Q 2018
IV Q 2018
III Q 2019
IV Q 2019
I Q 2018
I Q 2019
I Q 2020
18
2018 2019 2020
PMI Manufacturing
Export of goods Import of goods
PMI Manufacturing New Orders Export of services Import of services
PMI Manufacturing New Export Orders Urals
Sources: Bank of Russia, IHS Markit11
Labor market
Mln people, SA Jun May ∆ Labor force, million people, SA Unemployment and labor force
Lab. force 74.8 74.9 -0.1 77 7 4 7,0
Employed 70.1 70.3 -0.2
76 6
3 6,5
Unemployed 4.7 4.5 0.2
6,28
Reg. unempl. 2.7 2.1 0.6 75 5 6,11
2 6,0
As a range of enterprises
74 4
suspended their operation
within the anti-coronavirus 1 5,5
measures, employers’ 73 3
demand for labor dropped in
spring. 0 5,0
72 2
Unemployment growth slowed
down in June. -1 4,5
71 1
70 0 -2 4,0
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
Labor force
Employed Labor force, % YoY
Unemployed, rhs Unemployment rate, % SA, rhs
Registered unemployed, rhs
Sources: Rosstat, Bank of Russia’s estimates12
Fiscal policy
The Russian economy is Federal budget revenue and spending, Federal budget balance,
gaining support from the 12 month moving sum, as % of GDP 12 month moving sum, as % of GDP
20 4
Russian Government 19,0
measures aimed at mitigating 18 18,4
economic effects of the 2
17,4
coronavirus pandemic. 16
0
The current forecast takes into 14 -0,6
account that the fiscal 12,3
-2 -1,6
stimulus has increased nearly 12 11,4
twice compared to the 10 -4
measures that had been in
place when April’s forecast 8
-6
estimates were made. -5,3
6 -6,6
6,0
Medium-term inflation will be -8 -7,6
significantly influenced by the 4
scale and efficiency of the 2
-10
Government’s measures
towards mitigating the 0 -12
consequences of the 2014 2015 2016 2017 2018 2019 2020 2014 2015 2016 2017 2018 2019 2020
coronavirus pandemic and Доходы,
Total всего
revenue
overcoming structural Сальдо budget balance
Federal
Ненефтегазовые доходы
Non-oil-and-gas revenue
constraints, as well as the
Нефтегазовые доходы
Oil and gas revenue Ненефтегазовоеbalance
Non-oil-and-gas сальдо
speed of the 2021-2022
budget consolidation. Расходы
Total spending Без учета
Without сделки
extra по покупке
revenues Сбербанка
from the sale of
Without extra
Без учета revenues
сделки from the
по покупке sale of
Сбербанка Sberbank shares
Sberbank shares
Sources: Federal Treasury13
OFZ and corporate bond yields
Monetary conditions have
Dynamics of bond yields with rating B Dynamics of yields on bonds rated BBB
eased since the previous
meeting of the Bank of 10,0 300 10,0 100
Russia Board of Directors.
9,5 270 9,5 90
Interest rate dynamics
in various segments 9,0 240 9,0 80
of the domestic financial
market was diverging. 8,5 210 8,5 70
Spreads between OFZ
8,0 180 8,0 60
and corporate bond yields
dropped to the levels of early 7,5 50
7,5 150
2020.
7,0 120 7,0 40
6,5 90 6,5 30
6,0 60 6,0 20
5,5 30 5,5 10
5,0 0
5,0 0
01.19 04.19 07.19 10.19 01.20 04.20 07.20
01.19 04.19 07.19 10.19 01.20 04.20 07.20
Спред
BBB-OFZ (бп, bp
spread,
BBB-ОФЗ пш)rhs
B-OFZ
Спред spread,
B-ОФЗ bp rhs
(бп,пш)
Государственные облигации
Government bonds (Cbonds)
(Cbonds)
Государственные облигации
Government bonds (Cbonds)
(Cbonds)
Доходность корпоративных
Yield of BBB-rated
Доходность corporate
корпоративных bonds с рейтингом BBB
облигаций
Yield of B-rated corporateоблигаций
bonds с рейтингом B
Sources: Bank of Russia, Bloomberg14
Deposit and credit market – interest rates
Credit and deposit rates
decreased, inter alia, under The dynamics of interest rates on corporate The dynamics of interest rates on retail
loans in rubles, % per annum loans in rubles, % per annum
the influence of the earlier
made decisions on the key 16 24
rate reduction.
The Bank of Russia’s 14
20
decisions to cut the key rate,
along with a notable yield
12
drop in the OFZ market, as
16
compared with March-April,
pave the way for further 10
reduction in interest rates in
other segments of the 12
financial market. 8
8
6
4 4
2017 2018 2019 2020 2017 2018 2019 2020
Все краткосрочные
All short-term loans Все краткосрочные
All short-term loans
Все долгосрочные
All long-term loans Все долгосрочные
All long-term loans
Краткосрочные
Short-term loansМСП
to SME Ипотечные кредиты
Mortgage loans
Долгосрочные МСП
Long-term loans to SME Долгосрочные
Long-term car автокредиты
loans
Доходность трехлетних ОФЗ
3Y OFZ yield Доходность трехлетних ОФЗ
3Y OFZ yield
Sources: Bank of Russia15
Bank lending conditions
At the same time, the Board Indices of changes in individual lending The influence of certain factors on changes
conditions in Q2 2020 (pp) in lending conditions in Q2 2020 (pp)
noted that non-price lending
conditions tightened in 2Q20
банка
фондирование
фондирование
in certain market segments.
Внутреннее
Bank liquidity
CB policy ЦБ
Кредитная
обеспечению
Other factors
economy
Конкуренция
Ликвидность
Expectations
Commissions
Внешнее
credit policy
Competition
inв
к… terms
экономике
to кthe
Ожидания
to к
Ситуация
Политика
заемщику
Комиссии
банка
политика
Situation
факторы
level
кредитов
Спектрof
borrower
Треб.
Уровень
funding
security
Другие
условия
funding
amount
кредита
кредита
Размер
Interest
Другие
ставок
Треб.
Range
the …
Срок
Bank
Credit
Комиссии
Loan
Размер…
loans
Req.
Other
к…
Спектр…
…
Req.
Ext.
Уровень
term
Int.
rate
Срок…
Другие
Треб.
Треб.
30 30
30
20 20
20 Tightening zone
Tightening zone
10
10 10
0
0 -10 0
-20
-10 -10
-30
Mitigation zone
-20 Mitigation zone -20
-30 -30
Крупные компании
Large enterprises МСП
Small and medium enterprises
Ипотечное кредитование
Mortgage loans Потребительское
Consumer loans кредитование
Source: Bank of Russia16
Oil price assumptions
The Bank of Russia’s
Oil price path, average for the year, USD/bbl
forecast relies on a
conservative view of oil 90
prices.
80
That said, taking into account
the effects of OPEC+
arangments the Bank of 70
Russia increased oil price
assumptions from $27 to $38 60
per barrel in 2020 and from
$35 to $40 per barrel in 50
2021.
Urals price projections for 40
2022 remain at the same
level in the baseline scenario 30
compared to April – $45 per
barrel, and $50/bbl is 20
assumed as the long-run
equilibrium thereafter. 10
0
2015 2016 2017 2018 2019 2020 2021 2022
Actual Baseline (April) Baseline (July)
Source: Press release following the Bank of Russia’s Board of Directors meeting as of 24.07.202017
Bank of Russia forecast – CPI and GDP
CPI, % YoY GDP, % YoY
(upper and lower limits of forecast ranges) (upper and lower limits of forecast ranges)
18 5
17
4
16
15 3
14
13 2
12
1
11
10 0
9
8 -1
7
-2
6
5 -3
4
3 -4
2 -5
1
0 -6
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014 2015 2016 2017 2018 2019 2020F 2021F 2022F
Sources: Rosstat, Bank of Russia18
Bank of Russia forecast – Balance of payments
Current account balance, $ bln Financial account & Reserves, $ bln*
120 200
100 150
100
80
50
60
0
40
-50
20
-100
0 -150
2014 2015 2016 2017 2018 2019 2020 2021 2022 2014 2015 2016 2017 2018 2019 2020 2021 2022
F F F F F F
Public Sector Private Sector Change in reserves
*In BPM6 signs. In the Financial account “+” – net lending, “-” – net
borrowing.
Source: Bank of Russia19
Bank of Russia forecast, July 2020 (1)
BASELINE
Key parameters of the Bank of Russia’s baseline scenario 2019
(growth as % of previous year, if not indicated otherwise) (actual) 2020 2021 2022
Urals price, average for the year, US dollars per barrel 64 38 40 45
Inflation, as % in December year-on-year 3.0 3.7-4.2 3.5-4.0 4.0
Inflation, average for the year, as % year-on-year 4.5 3.1-3.3 3.3-4.0 4.0
Gross domestic product 1.3 -(4.5-5.5) 3.5-4.5 2.5-3.5
Final consumption expenditure 2.4 -(3.8-4.8) 3.5-4.5 1.7-2.7
– households 2.5 -(6.2-7.2) 4.3-5.3 2.0-3.0
Gross capital formation 3.8 -(9.0-12.0) 4.8-6.8 4.2-6.2
– gross fixed capital formation 1.5 -(5.7-7.7) 2.5-4.5 3.8-5.8
Exports -2.3 -(13.0-15.0) 4.5-6.5 4.5-6.5
Imports 3.4 -(18.8-21.8) 7.7-9.7 6.0-8.0
Money supply in national definition 9.7 9-12 7-11 7-11
Claims on organisations and households in rubles and foreign currency* 10.1 6-9 7-11 7-11
– on organisations 7.1 6-9 6-10 6-10
– on households 19.0 6-9 10-14 10-14
* Banking sector claims on organisations and households means all of the banking sector’s claims on non-financial and financial institutions and households in rubles, foreign
currency and precious metals, including loans issued (including overdue loans), overdue interest on loans, credit institutions’ investment in debt and equity securities and promissory
notes, as well as other forms of equity interest in non-financial and financial institutions, and other accounts receivable from settlement operations involving non-financial and financial
institutions and households.
Claims’ growth rates are given with the exclusion of foreign currency revaluation. In order to exclude the effect of foreign currency revaluation the growth of claims in foreign currency
and precious metals is converted to rubles using the period average USDRUB exchange rate.
Source: Press release following the Bank of Russia’s Board of Directors meeting as of 24.07.202020
Bank of Russia forecast, July 2020 (2)
BASELINE
Russia’s balance of payments indicators in the baseline scenario* 2019
(billions of US dollars) (estimate) 2020 2021 2022
Current account 65 2 3 10
Balance of trade 165 58 74 96
Exports 420 286 308 350
Imports 255 228 234 255
Balance of services -36 -18 -31 -44
Exports 63 46 52 56
Imports 99 64 83 100
Balance of primary and secondary income -64 -38 -40 -42
Current and capital account balance 65 1 3 10
Financial account (excluding reserve assets) -4 19 15 7
Government and the central bank -23 -6 -9 -8
Private sector 19 25 25 15
Net errors and omissions -2 -1 0 0
Change in reserve assets ('+' – increase, '-' – decrease) 66 -18 -13 3
* Using the methodology of the 6th edition of “Balance of Payments and International Investment Position Manual” (BPM6). In the Financial account “+” stands for net lending, “-” – for
net borrowing. Due to rounding total results may differ from the sum of respective values.
Source: Press release following the Bank of Russia’s Board of Directors meeting as of 24.07.202021
Monetary policy decision on 24 July 2020
12 decided
On 24 July 2020, the Bank of Russia Board of Directors
to cut the key rate by 25 bp to 4.25% per annum.
Disinflationary factors continue to exert
10 considerable influence on inflation. Household and
business inflation expectations have overall stabilised following a
decrease in May-June. The recovery of the global and Russian
8
economies will be gradual despite the fact that the easing of
restrictions revives economic activity. In these circumstances,
there is a risk that in 2021 inflation might deviate
6
downwards from the 4% target. A significant easing
of monetary policy since April aims at curbing this
risk and stabilising inflation close to 4% over the
4 4.25 forecast horizon. According to the Bank of Russia’s forecast,
given the current monetary policy stance, annual inflation will reach
3.2 3.7-4.2% in 2020, 3.5-4.0% in 2021 and will stand close to 4% later
on.
2
the
If the situation develops in line with the baseline forecast,
Bank of Russia will consider the necessity of
further key rate reduction at its upcoming meetings.
0 In its key rate decision-making, the Bank of Russia will take into
2017 2018 2019 2020
account actual and expected inflation dynamics relative to the target
Key rate, % per annum Inflation, % YoY and economic developments over the forecast horizon, as well as
risks posed by domestic and external conditions and the reaction of
financial markets.
Source: Press release following the Bank of Russia’s Board of Directors meeting as of 24.07.2020You can also read
