russia’s economic outlook and monetary policy - cbr.ru

RUSSIA’S ECONOMIC OUTLOOK AND MONETARY POLICY

October 2021

Sources: Rosstat, Bank of Russia

7.47.5

-1

0

1

2

3

4

5

6

7

8

9

10

2018 2019 2020 2021

Inflation by main groups, core inflation (% YoY)and the Bank of Russia key rate (% p.a.)

CPI, core CPI, headline Food Non-food Services Key rate

Consumer prices (1)

2

Sources: Rosstat, Bank of Russia’s estimates

Inflation had developed substantially above the Bank of Russia’s July forecast and is expected to be within the range of 7.4–7.9% at the end of 2021.

The acceleration in annual inflation since the second half of August comes in many ways as a result of rising fruit andvegetable prices. However, indicators reflecting the most sustainable price movements appreciably exceed 4% (annualised),Bank of Russia estimates show.

Consumer prices (2)

0

1

2

3

4

5

6

7

8

9

10

2018 2019 2020 2021

Median and headline inflation, %

Median, MoM SAAR CPI, YoY CPI, SAAR, 3mma

3

Inflation rates for main groups, seasonally adjusted (1)


Columns – monthly price growth rate, seasonally adjusted, %Line – annual inflation, % (rhs); thin line – 3MMA SAAR

Elevated indicators of steady inflation largely reflect the fact that steady growth in domestic demand exceeds productionexpansion capacity in a wide range of sectors.

In this context, businesses find it easier to pass higher costs, including on the back of rising global prices, on to consumers.

4

-10123456789101112

-10123456789

101112

2018 2019 2020 2021

All goods and services

-10123456789101112

-10123456789

101112

2018 2019 2020 2021

CPI, excluding fruit and vegetables,petrol and utility services

-4-20246810121416182022

-4-202468

10121416182022

2018 2019 2020 2021

Food goods

-4-20246810121416182022

-4-202468

10121416182022

2018 2019 2020 2021

Food goods, excluding fruit and vegetables

Inflation rates for main groups, seasonally adjusted (2)


Columns – monthly price growth rate, seasonally adjusted, %Line – annual inflation, % (rhs); thin line – 3MMA SAAR

The dominating influence of inflationary factors could lead to a more substantial and prolonged upward deviation of inflationfrom the target.

The Bank of Russia’s monetary policy stance is aimed to limit this risk and return annual inflation to 4%. Under the baselinescenario, annual inflation will edge down to 4.0–4.5% in 2022 and will remain close to 4% further on.

5

0123456789101112

0123456789

101112

2018 2019 2020 2021

Non-food goods

0123456789101112

0123456789

101112

2018 2019 2020 2021

Non-food goods, excluding petrol

-8

-6

-4

-2

0

2

4

6

8

10

-8

-6

-4

-2

0

2

4

6

8

10

2018 2019 2020 2021

Services

-8

-6

-4

-2

0

2

4

6

8

10

-8

-6

-4

-2

0

2

4

6

8

10

2018 2019 2020 2021

Services, excluding utility services

Inflation expectations – households

Sources: LLC “inFOM”, Rosstat

The impact of one-off supply-side drivers of inflation translates into growing prices for a wider range of goods and services asinflation expectations of households and businesses remain high and unanchored.

In October, households’ inflation expectations were up again to a fresh five-year high.

16.3

13.6

0

2

4

6

8

10

12

14

16

18

2017 2018 2019 2020 2021

Inflation observed and expected by households, median estimate, %

Observed inflation Expected inflation Annual inflation

6

Price expectations – businesses

Sources: Bank of Russia’s business survey, IHS Markit

45

50

55

60

65

70

75

80

2018 2019 2020 2021

PMI survey data on producer input and output prices, diffusion index, pp

PMI Mng

PMI Services

Average

Input Prices Output Prices

-5

0

5

10

15

20

25

30

35

40

45

50

2018 2019 2020 2021

Businesses - total Mining and quarrying

Manufacturing Agriculture

Construction Wholesale and retail trade

Transportation and storage Services

Replies of businesses to the question: “How will the prices of final goods

change in the upcoming 3 months (increase/decrease)?”, balance of

replies, % SA

7

Recent data suggest a rise in price expectations of businesses, which are invariably close to multiyear highs.

Economic activity – Basic output indicator

Sources: Rosstat, Bank of Russia’s calculations

High-frequency indicators suggest that the economy continued to grow in Q3 albeit at a somewhat slower pace. Based onBank of Russia estimates, this is largely associated with the return of the Russian economy to a balanced growth path.

At the same time, a number of sectors are under increased pressure from supply-side constraints. Their restraining effect onbusiness activity may strengthen against the background of tightened anti-pandemic measures.

8

2.0

-0.9

5.3

4.2

-10.5

-30

-20

-10

0

10

-15

-10

-5

0

5

2017 2018 2019 2020 2021

Output in basic industries, % growth to Dec. 2019, SA

Basic output indicator Mining and quarrying

Manufacturing, rhs Electricity, gas, water, and other, rhs

Agriculture,rhs

2.0

7.2

3.5

5.9

3.0

-30

-20

-10

0

10

20

-15

-10

-5

0

5

10

2017 2018 2019 2020 2021

Output in basic industries, % growth to Dec. 2019, SA

Basic output indicator Construction

Transportation Wholesale trade, rhs

Retail trade, rhs

Consumer activity

Sources: Rosstat, Bank of Russia’s calculations

Rapid growth in lending, one-off budget payments, rising real wages and households’ low propensity to save, driven by highinflation expectations, support expansion in consumer activity, especially in non-food markets.

A recovery in the services sector is held back by the challenging epidemic situation.

9

-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

2017 2018 2019 2020 2021

Consumer activity,% growth to Dec. 2019, SA

Food goods Non-food goods

Retail trade Commercial services

Consumption*

*Consumption is calculated as the weighted growth rates of retail (~¾) and services (~¼).

15,4%

13,7%

9,0%

17,8%

13,4%15,9%

19,7%

-5%

0%

5%

10%

15%

20%

May

Jun

Jul

Au

gS

ep

27-3

Oct

4-1

0 O

ct

11-1

7 O

ct

May

Jun

Jul

Au

gS

ep

27-3

Oct

4-1

0 O

ct

11-1

7 O

ct

May

Jun

Jul

Au

gS

ep

27-3

Oct

4-1

0 O

ct

11-1

7 O

ct

May

Jun

Jul

Au

gS

ep

27-3

Oct

4-1

0 O

ct

11-1

7 O

ct

Consumer activity, YoY

Rosstat (physical quantity, from 21 Apr., growth on 2019)

Sber (costs adjusted for low base effect)

Retail trade Non-food goodsFood goods Services

Investment activity and construction

Sources: Rosstat, Federal Customs Service, Bank of Russia’s calculations

Growing domestic and external demand and high corporate profits shore up investment activity.

High rates of new housing launches reflect the significant expansion of demand during the period of preferential mortgageprogrammes.

10

2 767

-500

0

500

1 000

1 500

2 000

2 500

3 000

2018 2019 2020 2021

Consolidated financial result of organisations, billion rubles

Consolidated financial result

6,5

3,4

41,1

-20

-10

0

10

20

30

40

50

-10

-5

0

5

10

15

20

25

2019 2020 2021

Investment activity and construction, % YoY (excl. the calendar factor*)

Construction Fixed capital investment

New housing launches, rhs

* From April 2021, the data is presented compared to 2019

Labour market (1)

11


Moderate inflationary pressure from the labour market persists. Demand for the labour force is growing in many industries.

At the same time, many sectors show labour shortages, including due to remaining restrictions on the inflow of foreign labour.

The unemployment rate is close to its record lows, with the number of vacancies at its record highs.

75.2

71.7

3.5

0.9

0

1

2

3

4

5

6

7

69

70

71

72

73

74

75

76

77

2016 2017 2018 2019 2020 2021

Labour force, million people, SA

Labour force Employed

Unemployed, rhs Registered unemployed, rhs

4.6

4,0

4,5

5,0

5,5

6,0

6,5

7,0

-2

-1

0

1

2

2017 2018 2019 2020 2021

Unemployment and labour force

Labour force, % YoY Unemployment rate, % SA, rhs

Labour market (2)

12


High nominal wage growth is linked to a shortage of labour supply in private sector industries, productivity growth, as well asa low base effect.

The state of the labour market suggests that a further increase in steady growth rates of the Russian economy will primarilybe conditional on the growth paces of labour productivity.

0.9 2.1 8.0 1.9 1.0 2.3 8.2 4.8 3.5 14.7 10.8 7.6 2.5 5.0 7.1 8.5 4.3 4.7

-5%

0%

5%

10%

15%

20%

Гости

ни

цы

и

ресто

раны

Ад

ми

н-н

ие

Транспорт

Кул

ьту

ра и

спорт

Вод

оснаб

жени

е

Нед

ви

жи

мость

Об

разо

вани

е

Стр

ои

тел

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о

ЭЭ

ГП

Об

раб

отк

а

Торго

вл

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Наука

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роф

.

С/х

ВС

ЕГО

Фи

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Госуправл

ени

е

Зд

равоохранени

е

Доб

ыча

Инф

орм

ац

ия

и с

вязь

г/г, %

средний прирост г/г за 2 года, %

ХХ - доля ФОТ, %

+22%

Pu

blic

he

alth s

erv

ice

Info

rma

tion a

nd

co

mm

un

ication

Nominal wages, YoY

Ho

tels

an

d

resta

ura

nts

Ad

min

istr

ation

Tra

nsp

ort

Cu

ltu

re a

nd s

po

rt

Wa

ter

su

pply

Re

al e

sta

te

Ed

ucation

Co

nstr

uction

Ele

ctr

icity, g

as,

wa

ter

Pro

cessin

g

Tra

de

Scie

nce

Ag

ricu

lture

To

tal

Fin

ance

Pu

blic

ad

min

istr

ation

Min

ing

YoY, %

Average growth over 2 years, %

XX – share of payroll, %

GDP growth

13

Sources: Rosstat, Monetary policy department’s calculations

Taking into account domestic and global economic developments as well as the nature of supply-side constraints, the Bank ofRussia expects GDP to grow 4.0–4.5% in 2021.

According to the Bank of Russia’s forecast, in 2022–2024, the Russian economy will grow 2.0–3.0% per annum.

Contribution to annual growth, pp

10.51.3 2.3 2.6 1.0 2.6 2.7 2.6 3.2 1.3 1.2 2.6 2.9 1.4 -7.8 -3.5 -1.8 -0.7

-15

-10

-5

0

5

10

15

20

2017 2018 2019 2020 2021

Final consumption of households Final consump. of the general governmentGross fixed capital formation (GFCF) Changes in inventoriesExports ImportsOther GDP, %

Ruble exchange rate

Sources: Reuters, Bloomberg

90

100

110

120

130

140

150

160

2001 2004 2007 2010 2013 2016 2019 2022

Real effective ruble exchange rate

REER

7,5

8,0

8,5

9,0

9,5

10,0

10,5

11,0

11,5

12,0

12,5

50

55

60

65

70

75

80

85

90

95

100

2017 2018 2019 2020 2021 2022

Ruble exchange rate

USDRUB EURRUB CNYRUB, rhs

14

-3000

-2000

-1000

0

1000

2000

3000

4000

5000

6000

2014 2015 2016 2017 2018 2019 2020 2021

Over 3 years 1-3 years

Up to 1 year On demand

Escrow accounts Foreign currency deposits

General change (without escrow)

Deposit and credit market – lending and deposits

Sources: Bank of Russia, Monetary policy department’s estimates

Monetary conditions have not seen any significant changes since the previous meeting of the Bank of Russia Board ofDirectors. Rising market rates following the increase in the key rate have so far had a limited effect on lending in the contextof high inflation expectations.

Signs have emerged of small inflows of funds into fixed-term ruble deposits. Corporate lending is continuing to grow at ratesclose to recent years’ highs. Disbursements of mortgage and unsecured consumer loans are still high.

Contribution from individual elements to the annual growth

of banks' liabilities to the households, billion rubles

15

-10

0

10

20

30

2014 2015 2016 2017 2018 2019 2020 2021

Contribution to annual growth of bank claims, pp

Revaluation of FX loansBondsConsumer loansMortgage loansLoans to enterprises for more than 3 yearsLoans to enterprises for up 3 yearsTotal loan portfolio, %Total loan portfolio, excl. FX revaluation, %

OFZ yields

Sources: MOEX, Cbonds.ru, Bloomberg

4

5

6

7

8

9

10

2018 2019 2020 2021

OFZ yields and the key rate, %

OFZ 1Y OFZ 2Y OFZ 5Y

OFZ 10Y OFZ 15Y Key rate

16

Yields of short-term OFZs have risen, reflecting expectations for the Bank of Russia to raise the key rate. Yields of medium-

and long term OFZs are also up somewhat under the influence of trends in global financial markets.

0,0

0,5

1,0

1,5

2,0

2,5

3

4

5

6

7

8

1 2 3 4 5 6 7 8

Zero-coupon yield curve (ZCYC), %

Change in the ZCYC for a month, p.p., rhsChange in the ZCYC since the last BOD meeting (10.09.2021), p.p., rhs10.09.202121.10.2021Min/Max for 12 monthsMedian for 12 monthsMedian in 2020

Yie

ld t

o r

ep

aym

en

t, %

pe

r a

nn

um C

ha

ng

e in

yie

lds

, p.p

.

Maturity, years

Deposit and credit market – interest rates

Source: Bank of Russia

Lending and deposit rates sustain their growth driven by the key rate rises between March and September.

The Bank of Russia’s monetary policy stance will help solidify a trend towards growing appeal of household deposits, protectthe purchasing power of savings and ensure balanced expansion in lending.

4

6

8

10

12

14

2018 2019 2020 2021

Interest rates on corporate loans in rubles, % per annum

Short-term loans, all Long-term loans, all

Short-term loans to SME Long-term loans to SME

Key rate

17

0

2

4

6

8

10

12

14

16

18

20

2018 2019 2020 2021

Interest rates on retail loans and household deposits in rubles, % per annum

Short-term loans, all Long-term loans, all

Car loans Mortgage loans

Key rate Short-term household deposits, all

Long-term household deposits, all

Fiscal policy

Source: Federal Treasury, Bank of Russia estimates

Medium-term inflation is largely influenced by fiscal policy. In its baseline scenario, the Bank of Russia proceeds from the fiscalpolicy normalisation path stipulated by the Guidelines for Fiscal, Tax and Customs and Tariff Policy, which assumes a return tofiscal rule parameters in 2022.

The Bank of Russia’s forecast also takes into account decisions made by the Russian Federation Government to invest theliquid part of the National Wealth Fund.

Federal budget revenues and spending,

12 month moving sum, as % of GDPFederal budget balance,

12 month moving sum, as % of GDP

18

-0.8

-7.0

-1.1

-7.3

-12

-10

-8

-6

-4

-2

0

2

4

2014 2015 2016 2017 2018 2019 2020 2021

Federal budget balance

Non-oil-and-gas balance

Without extra revenues from the sale of Sberbank shares and NorilskNickel's penalty

19.1

6.2

12.9

19.9

18.6

12.7

0

5

10

15

20

25

2014 2015 2016 2017 2018 2019 2020 2021

Total revenues

Oil and gas revenues

Non-oil-and-gas revenues

Total spending

Without extra revenues from the sale of Sberbank shares and NorilskNickel's penalty

Bank of Russia’s medium-term forecast – Oil price assumptions

19

Source: Press release following the Bank of Russia’s Board of Directors meeting as of 22.10.2021

The Bank of Russia revised up the oil price path in the baseline scenario: to $70 per barrel in 2021 and $65 per barrel in2022, taking into account the considerable improvement of the situation in global markets of energy commodities.

Urals price projections for 2023 remain unchanged (USD 55 per barrel). The longer-term equilibrium is assumed to be at thelevel of USD 50 per barrel.

0

10

20

30

40

50

60

70

80

90

2018 2019 2020 2021 2022 2023 2024

Oil price path, average for the year, USD/bbl

Actual Baseline (July) Baseline (October)

7.4

7.9

4 4

1

2

3

4

5

6

7

8

2017 2018 2019 2020 2021 2022 2023 2024

CPI, % YoY(upper and lower limits of forecast ranges)

F

4

4.5

Bank of Russia’s medium-term forecast – CPI and GDP

20


FFF

-4

-3

-2

-1

0

1

2

3

4

5

2014 2015 2016 2017 2018 2019 2020 2021F

2022F

2023F

2024F

GDP, % YoY(upper and lower limits of forecast ranges)

4.0-4.5

2.0-3.0 2.0-3.0 2.0-3.0

Bank of Russia’s medium-term forecast – Balance of payments

21


* In BPM6 signs. In the Financial account “+” – net lending,

“-” – net borrowing.

0

20

40

60

80

100

120

140

2014 2015 2016 2017 2018 2019 2020 2021F

2022F

2023F

2024F

Current account, billions of US dollars

-150

-100

-50

0

50

100

150

200

2014 2015 2016 2017 2018 2019 2020 2021F

2022F

2023F

2024F

Financial account & Reserves, $ bln*

Public Sector Private Sector Change in reserves

Bank of Russia’s medium-term forecast, October 2021 (1)

22


*Given that from January 1st to October 24th 2021 the average key rate is 5.3%, from October 25th to the end of 2021 the average key rate forecast range is 7.5-7.7%. Additionalinformation on how to interpret the proposed format of the key rate forecast communication is presented in the methodological note[http://cbr.ru/Content/Document/File/120337/comment_20210422_e.pdf].** Banking system claims on organisations and households means all of the banking system’s claims on non-financial and financial institutions and households in rubles, foreign currencyand precious metals, including loans issued (including overdue loans), overdue interest on loans, credit institutions’ investment in debt and equity securities and promissory notes, as wellas other forms of equity interest in non-financial and financial institutions, and other accounts receivable from settlement operations involving non-financial and financial institutions andhouseholds.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 andprecious metals is converted to rubles using the period average USDRUB exchange rate. Mortgage loans net of claims acquired by banks.

Key parameters of the Bank of Russia’s baseline scenario

(growth as % of previous year, if not indicated otherwise)

2020

(actual)

BASELINE

2021 2022 2023 2024

Inflation, as % in December year-on-year 4.9 7.4-7.9 4.0-4.5 4.0 4.0

Inflation, average for the year, as % year-on-year 3.4 6.5-6.6 5.2-6.0 4.0 4.0

Key rate, average for the year, % per annum 5.1 5.7-5.81 7.3-8.3 5.5-6.5 5.0-6.0

Gross domestic product -3.0 4.0-4.5 2.0-3.0 2.0-3.0 2.0-3.0

Final consumption expenditure -5.2 6.9-7.9 1.0-2.0 1.6-2.6 1.7-2.7

– households -8.6 9.0-10.0 1.0-2.0 2.0-3.0 2.0-3.0

Gross capital formation -2.0 5.4-7.4 0.5-2.5 2.9-4.9 2.5-4.5

– gross fixed capital formation -4.3 5.4-7.4 0.4-2.4 2.6-4.6 2.0-4.0

Exports -4.3 2.6-4.6 5.0-7.0 1.2-3.2 1.2-3.2

Imports -12.0 15.0-17.0 1.1-3.1 2.7-4.7 1.2-3.2

Money supply in national definition 13.5 8-12 9-13 7-11 6-10

Claims on organisations and households in rubles and foreign currency* 10.9 11-15 9-13 7-11 7-11

– on organisations 10.2 8-12 7-11 6-10 7-11

– on households, including 12.9 21-25 14-18 10-14 7-11

mortgage loans 21.6 23-27 15-19 14-18 12-16

Bank of Russia’s medium-term forecast, October 2021 (2)

23


* 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, “-” – fornet borrowing. Due to rounding total results may differ from the sum of respective values.

Russia’s balance of payments indicators in the baseline scenario*

(billions of US dollars)

2020

(actual)

BASELINE

2021 2022 2023 2024

Current account 36 121 111 40 24

Balance of trade 94 186 205 142 130

Exports 333 490 511 451 444

Imports 240 304 307 309 314

Balance of services -17 -18 -34 -37 -40

Exports 47 52 59 63 68

Imports 64 70 92 100 108

Balance of primary and secondary income -41 -47 -60 -64 -66

Current and capital account balance 35 121 111 40 24

Financial account (excluding reserve assets) 53 60 58 23 16

Government and the central bank -1 -21 -7 -8 -10

Private sector 54 80 65 30 25

Net errors and omissions 4 -3 0 0 0

Change in reserve assets ('+' – increase, '-' – decrease) -14 58 53 18 8

Urals price, average for the year, US dollars per barrel 42 70 65 55 50

The Bank of Russia’s monetary policy decision in October 2021: the key rate is increased by 75 b.p. to 7.50% p.a.


On 22 October 2021, the Bank of Russia Board of Directorsdecided to increase the key rate by 75 b.p. to 7.50% per annum.

Inflation is developing substantially above theBank of Russia’s forecast and is expected to bewithin the range of 7.4–7.9% at the end of 2021.The contribution of persistent factors to inflation remainsconsiderable on the back of faster growth in demand relative tooutput expansion capacity. In this environment, given that inflation

expectations are up again, the balance of risks forinflation is markedly tilted to the upside. This maybring about a more sustained deviation of inflation from the target.The Bank of Russia’s monetary policy stance is aimed to limit thisrisk and return inflation to 4%.

If the situation develops in line with the baseline forecast, the

Bank of Russia holds open the prospect of furtherkey rate rises at its upcoming meetings. Key ratedecisions will take into account actual and expected inflationmovements relative to the target and economic developmentsover the forecast horizon, as well as risks posed by domestic andexternal conditions and the reaction of financial markets. Based on

the Bank of Russia’s forecast, given the monetary policystance, annual inflation will edge down to 4.0–4.5% in 2022 and will remain close to 4% furtheron.

24

7.57.4

0

1

2

3

4

5

6

7

8

9

10

11

2017 2018 2019 2020 2021

Key rate, % CPI, % YoY

russia’s economic outlook and monetary policy - cbr.ru

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