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Central Bank sees improvement in economic indicators, amidst signals of economic decline

Consumer demand and manufacturing activity in many regions are recovering

MOSCOW, June 5. / TASS /. The Business Activity Index (PMI) in Russia is still significantly below the neutral mark of 50 points, which indicates a continued decline in economic activity, said the head of Central Bank Elvira Nabiullina during an online conference on Friday.

However, consumer demand and manufacturing activity in many regions are recovering, she added.

"The PMI indices both in industry and in services showed a noticeable improvement after a record failure in April. However, it should be noted that the indices are still well below the neutral mark of 50 points. This signals a continuing decline in economic activity," Nabiullina said.

However, in recent weeks, many regions have reduced restrictive measures, and economic indicators signal an improvement in the dynamics of consumer demand and production activity, said Nabiullina. Consumption oriented industries are recovering most actively.

At the same time, Nabiullina considers the scenario of a V-shaped recovery of the Russian economy unrealistic, since time is needed for the supply chain to recover. Moreover, the L-shaped scenario, which means a long stagnation, is also unlikely to be realized, she believes.

According to Nabiullina, in the second half of the year the employment situation will begin to improve. "Unemployment [in April] increased by about 1 percentage point compared with March. It corresponds to the levels of early 2016 and is much less than in some of the largest economies. Operational indicators indicate that according to the results of May, unemployment increased slightly, but a gradual restoration of economic activity should also ensure a gradual restoration of employment in the second half of the year," she said.


Key rate

Based on inflation data and the economic situation as a whole, the Central Bank still sees room for lowering the key rate. According to Nabiullina, the next meeting of the Board of Directors of the Central Bank will also consider the option of reducing the key rate by 1 percentage point. A more drastic change in the rate may carry risks for banks and the economy, and the Central Bank prefers to act gradually so that all economic entities have time to adapt.

" We will make the decision [to reduce the key rate] based on data that has already been received, which will continue to come in, and from the refinement of our forecast estimates for inflation and GDP," Nabiullina added.


Community support

The Central Bank also noted a decrease in demand among Russians for credit holidays and loan restructuring. At the same time, the regulator does not expect a second wave of demand for credit holidays, however, the mechanism will continue to work, since the program is slated to run until September 30. According to the Central Bank, more than 2 mln applications for restructuring loans from citizens have already been received. Banks restructured loans to Russians over 510 bln rubles, with a total approval rate of 61.5%.

However, the peak in the growth of loans with overdue payments in Russian banks will fall on the IV quarter of 2020 - the beginning of 2021, Nabiullina believes.

At the same time, the regulator has not yet noted the demand of Russian banks for instruments for providing liquidity. "The liquidity situation remained calm, and banks did not show demand for Central Bank's instruments for providing liquidity," Nabiullina said.