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Russia’s Central Bank abandons optimistic scenario in new forecast

February 29, 10:57 UTC+3
The regulator views February data with ‘cautious optimism’ in respect of inflation expectations
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© Sergei Fadeichev/TASS

SHANGHAI, February 29. /TASS/. Russia’s Central Bank has abandoned optimistic scenario of monetary policy in its updated macroeconomic forecast due to be published on March 18, Central Bank Chief Elvira Nabiullina said on Monday.

"[Oil price at — TASS] $25 per barrel is a working variant [of risk scenario — TASS], and we’ll be reviewing background for the scenario by the end of March this year, including our forecasts of oil price for base and risk scenario," she said, adding that "optimistic scenario hasn’t been worked out yet."

The regulator reviews its macroeconomic forecast once per quarter. The next monetary policy report containing updates to the macroeconomic forecast will be published after the Central Bank’s board meeting on March 18.

The latest forecast of the Bank of Russia (published on December 11) implies oil price at $50 per barrel for 2016, GDP contraction of 0.5-1% and 5.5-6.5% inflation. Meanwhile the Finance Ministry and the Economic Development Ministry has already officially downgraded their forecasts amidst substantial oil price plunge.

Bank of Russia is ‘cautiously optimistic’ on inflation in February

The regulator views February data with ‘cautious optimism’ in respect of inflation expectations, Elvira Nabiullina went on to say.

"I should say the latest February data inspire some cautious optimism that inflation expectation even slightly declined, despite the [ruble] rate devaluation. We hope such dynamics will be positive," she said.

Inflation and inflation expectations are among key factors when the Central Bank decides on the key rate within the inflation targeting framework. The traditional set of inflation risks remains for the time being, Nabiullina said. "External shocks related to oil prices movements and the exchange rate dynamics are also possible. We never disregard them and therefore consider a risk-based scenario exactly from the standpoint of additional inflation risks. Inflation expectations are also a factor of inflation risks," she added.

The regulator has not yet estimated the ruble weakening contribution into annual inflation rates although recognizes that the Finance Ministry’s estimate (2.5 percentage points) is relevant, Nabiullina added.

Russia’s Central Bank preliminarily estimates GDP contraction at 1-3% for 2016

According to Nabiullina, Russia’s Central Bank preliminarily estimates GDP contraction at 1-3% for 2016, quarterly growth is possible in Q4.

"Depending on scenarios our preliminary forecast for GDP contraction is 1-3%. In base case scenario we see potential growth in quarterly terms by the end of the year, in the fourth quarter," she said.

Bank of Russia to determine its position on additional deductions to compulsory provisions by April 1

The Bank of Russia will decide whether to increase banks’ deductions into compulsory provisions for deposits by April 1, Chairperson of the Central Bank went on to say.

"This issue is in the course of internal discussions. We are discussing the feasibility to make such a step and amounts of deductions if differentiation is introduced for deductions to compulsory provisions for currency and ruble deposits. We will try to finalize our position by April 1," the official said.

Russia’s Central Bank upgrades 2016 capital outflow estimate to $30-40 bln at $25-35 per barrel oil price

Russia’s Central Bank has upgraded its estimate of capital outflow from the country for 2016 to $30-40 bln if oil price stands at $25-35 per barrel, versus $53 bln in December forecast.

"Our current estimate (for capital outflow) is $30-40 bln if oil price stands in the range of $25-35 per barrel. In any case it will be almost twice as low as in 2015, this year we expect capital outflow to further decrease," Nabiullina noted, adding that capital outflow will go down due to decreasing foreign debt retirements "as the main source of capital outflow are foreign debt redemptions, not increase of foreign assets."

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