Excerpts from Information Notice of Bank of Russia:
On 30 October 2015, the Bank of Russia Board of Directors decided to keep the key rate at 11.0 percent per annum, in recognition of persistent substantial inflation risks. The balance between inflation risks and the risks of economy cooling has mainly remained unchanged. Given the decision made, the moderately tight monetary conditions and the weak domestic demand will keep putting downward pressure on inflation. The annual pace of consumer price growth in October 2016 is estimated to be under 7% and expected to total 4% in 2017. As inflation slows down in line with the forecast, the Bank of Russia will continue with a downward revision of its key rate, at one of its forthcoming Board of Directors meetings. In making its rate decisions, the Bank of Russia will be guided by changes in the balance between inflation risks and the risks of economy cooling.
September saw a somewhat slower economic downturn, evidenced by key macroeconomic indicators. While structural factors are still curbing economic growth, the current output contraction is also of a cyclical nature. However, the negative demographic trends keep unemployment low, while the labour market is adjusting to the new conditions, largely through a decline in real wages and wider part-time employment. These factors, along with low retail lending, will further contain consumer spending. Fixed capital investment will continue to be weak amid persistent economic uncertainty and relatively tough lending conditions. Investment demand is expected to be constrained by limited potential substitution of external finance with domestic one, following the narrow nature of the Russian financial market and high corporate debt load. Investment is likely to be supported somewhat by the governmental turnaround programme. Weak investment and consumer activity will cause low demand for imports. As a result, net exports will be a positive contributor to the annual output growth. Going forward, the economic situation will depend on the global energy prices and the pace of economy’s adjustment to external shocks.
Key sources of inflation risks include a further worsening of external climate, persistently high inflation expectations and an upward revision, planned for 2016-2017, of rates and prices in the regulated sector, upward revision of social payments indexation, as well as overall budget policy easing.