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Bank of Russia forecast until 2026 — moderate GDP growth, despite falling oil prices

By 2026, the Bank of Russia intends to achieve 1.5-2.5% GDP growth and bring the key rate to a long-term neutral range of 5.5-6.5%

© Gavriil Grigorov/TASS

MOSCOW, August 11. /TASS/. Commodity prices, including oil prices, will fall as a result of deglobalization, but Russia's GDP will not fall below 2020 levels even under a risky scenario, the Bank of Russia reported on Friday.

By 2026, the Bank of Russia intends to achieve 1.5-2.5% GDP growth and bring the key rate to a long-term neutral range of 5.5-6.5%.

Base scenario

The base scenario for the Russian economy's development until 2026 is based on the premise that geopolitical conditions will not change and that the current sanctions against the Russian Federation will remain in place.

In this case, Russia's GDP will be able to grow at a balanced rate of 1.5-2.5%. However, the process of deglobalization will have an impact on it - as a result, the price of a barrel of Urals oil will reach $45 by 2025.

The Bank of Russia expects to reduce the key rate to a long-term neutral range of 5.5-6.5% (currently - 8.5%) by 2026, however the decision will made taking into account the current situation.

Inflation is expected to stabilize at 4%, with a further target to be determined later. Household spending, which is expected to expand at a 6-8% annual rate in 2023, would decline due to a weakening recovery momentum, as well as tighter monetary policy required to return inflation to the target, the regulator said.

Risk scenario

According to the Bank of Russia, oil price may fall to $30 per barrel under this scenario. Sanctions pressure may also increase; however, the problem may become global. "The division into regional blocs will negatively affect world trade and restrain the growth of the global economy," the regulator said.

As a result, the regulator’s specialists estimate that the Russian economy's growth rate will be lower than under the baseline scenario. At the same time, Russia's GDP will not fall below 2020 levels in this scenario.

Instruments

The existing restrictions of the Bank of Russia "offset the effect of the imposed external sanctions aimed at stimulating capital withdrawal from foreign investors." They are manageable, but only on a bilateral basis.

In any way, the ruble's exchange rate remains volatile. Its value, however, is decided by "the balance of importers’ demand for foreign currency and exporters’ supply of foreign currency, and, to a lesser extent, capital flows."

The Bank of Russia may intervene in foreign exchange markets to safeguard financial stability. Although the regulator will use the yuan for this.

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