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Russia’s Central Bank does not expect sharp changes in economic structure

December 02, 2016, 14:10 updated at: December 02, 2016, 16:43 UTC+3 MOSCOW

Oil price dynamics will continue putting pressure on Russia’s economy, according to the Central Bank chief

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MOSCOW, December 2. /TASS/. Russia’s Central Bank does not expect sharp changes in the country’s economic structure in the nearest future, Central Bank Chief Elvira Nabiullina said Friday.

"We assume that there will be no sharp changes in the economic structure as it needs time. The growth rates will be positive, but unfortunately will remain at low levels," she said.

On Thursday, Russian President Vladimir Putin requested in his state-of-the-nation address to the Federal Assembly (Russian parliament) an ambitious plan to be developed by the government, which will allow getting to the economic growth rates higher than 3%.

According to the Central Bank, Russia’s GDP stopped falling in the third quarter of this year as it slowed down to 0.4% from 0.6% in the second quarter. Russia’s GDP contraction will amount to 0.5-0.7% by the end of the year, the regulator said.

Nabiullina called on the government not to put up with the "ceiling" of the Russian economy growth at 1.5-2%.

"There aren’t easy recipes for the recovery of the Russian economy's ability to grow rapidly, but we should not put up with a ceiling of 1.5-2%," she said.

Cyberattacks

The bank has required tools to provide help to banks in case of cyberattacks, Nabiullina said. 

"We are interacting with the Federal Security Service and have information that both cyberattacks and information attacks are possible concurrently. Such attacks were made already. The most important is that the banking community is prepared to counter them. The Central Bank has all tools to help banks if needed," Nabiullina said.

Oil price

"The oil price dynamics will remain a serious factor for the Russian economy due to a low level of Russia’s economic diversification," she said, adding that long-term growth of oil prices will speed up recovery of the Russian economy.

"Oil prices growth, if it is a long-term one, will lead to slightly quicker recovery of the Russian economy. This is because it will support export of the Russian economy. However, I am confident that domestic problems, structural problems are the primary ones over the long term. We need diversification of the economy," the banker said.

The decision made by the OPEC to limit oil production will influence on price growth and help the Russian economy to recover, Nabiullina said. "Certainly, this will influence on quicker elimination of the supply and demand imbalance on the oil market. We already see this now. It means quicker rehabilitation of the Russian economy," she added.

Since the start of this week the price of Brent crude oil has surged by 11%, on Thursday it exceeded the $54 per barrel mark for the first time since October 2015. Oil prices have been rising this week following Wednesday's agreement by OPEC member-states to cut output.

Inflation

The Central Bank expects inflation in Russia to be 2.5 times lower than in 2015 by the end of 2016.

"In the end of the year we expect that inflation will be 2.5 times lower than at the end of last year. This is comparable to the low level inflation reached in 2011-2013, but we had cases when inflation fell, and then rose. Volatility of inflation is also a factor of uncertainty for business projects, so a one-time decline is not enough. We need to ensure that low inflation becomes a long-term basis for price stability," she said.

"We do not expect long volatility or high volatility on financial markets that would pose some risks of instability. Some higher volatility can emerge for a short time but not for a long time," she said.

The Central Bank believes that direct impact of federal fund rate on the Russian economy is very limited, Nabiullina added. 

Russian banks' reserves

Russian banks have reserve of 2 trillion rubles ($35.7 bln) in order to increase financing of the economy.

"The capital of banks increased by 1% and the capital adequacy ratio is in the comfort zone of 12.7%, while the minimum level is 8%. That means that banks have the capital stock in order to increase lending. We estimate the stock at approximately 2.3 trillion rubles," she said.

Financing of economy is insecure and decreased by 1.5% in January-October of 2016.

"Unfortunately, so far financing of the economy is insecure. In ten months it decreased by 1.5%, excluding currency rate impact factor," she said.

Russian banks earned 700 bln rubles ($10.9 bln) in 10 months of 2016. The Central Bank upgrades forecast for banking sector revenues in 2016 from 800 bln rubles ($12.46 bln) to 900 bln rubles ($14.02 bln).

"This year, the profit in banking sector grew. The sector is regaining its profitability. For 10 months the profit was slightly more than 700 bln rubles. According to our estimates for the whole year the profit may amount to about 900 bln rubles. It is important for us that the profit should be spent not on consumption but on replenishment of the capital of the banking system so that banks could increase lending," she said.

Capital outflow

Capital outflow from Russia will be less than $20 bln by the end of 2016.

"This year we expect capital outflow at the level of less than $20 bln," she said.

The Central Bank said earlier that net capital outflow from Russia will total $25 bln in 2016 and 2017, and will be $29 bln in 2018.

In the Q1 of 2016, net capital outflow from the private sector fell by almost two times in comparison with the first quarter of last year to $12 bln on a background of less significant foreign debt payments.

According to the Economic Development Ministry, capital outflow in 2016 will be at $14-18 bln and will rise up to $25 bln by 2019.

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