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Russian Central Bank forecasts GDP decline more than in base case scenario in 2016

January 29, 2016, 14:36 UTC+3

The GDP growth rate will be positive in 2017 but will remain low

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© Alexandr Ryumin/TASS

MOSCOW, January 29. /TASS/. The Bank of Russia does not rule out Russia’s GDP will decline more in 2016 than assumed earlier in the base case scenario (0.5-1%) due to probably lower oil prices, the regulator said on Friday after its Board of Directors’ meeting on the key rate.

The GDP growth rate will be positive in 2017 but will remain low, the Bank of Russia said. According to the base case scenario of the Central Bank released last December, the GDP will decline 0.5-1% in 2016 and may grow up to 1% in 2017.

"Oil prices in 2016-2017 will probably be lower than assumed in the base case scenario. The floating rate will partly compensate the adverse impact of low energy prices on the economy. Nevertheless, further adaptation of the payment balance and the economy to lowered level of global prices on Russian export will be required. The GDP decline will therefore be more substantial than forecasted earlier in the base case scenario," the regulator said.

The period of additional adaptation of the Russian economy may take several quarters. According to regulator’s forecast, oil prices will be $50 a barrel under the base case scenario and $35 per barrel under the risky scenario.

The Bank of Russia does not rule out higher inflation and financial stability risks if low oil prices remain at a low level for a long time.

"If oil prices remain low for a long time, it will result in continued growth of inflation risks and risks for financial stability, and in the need of greater adaptation of the economy to new conditions. Long-term high inflation expectations may prevent slowdown of consumer prices hike. Balanced budget policy for the mid-term will be required to mitigate risks," the regulator said.

The Bank of Russia will act in advance and prevent threats to financial stability, Chairperson of the Bank of Russia Elvira Nabiullina said earlier. The Bank of Russia has all tools required to do so, she added. Financial stability indicators remain normal, the Central Bank told TASS on January 20.

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