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Inflation in Russia to be about 3% in early 2018 — Central Bank chief

The Russian Central Bank chief has commented on the decision to cut key rate to 7.75%

MOSCOW, December 15. /TASS/. Inflation in Russia will be about 3% in early 2018 and will reach the target of 4% in the second half of the year, Chairperson of the Bank of Russia Elvira Nabiullina said on Friday.

"Inflation can be about 3% in first months of 2018. According to our estimate, inflation will closely approach 4% in the second half of the year as influence of temporary factors of this year will fade away," the banker said.

"The success of our agriculture played the key role in such a significant reduction in inflation: the annual increase in food products in November was only 1.1%," she said.

"The effects associated with the a big harvest of 2017 will gradually be exhausted. In the first half of 2018, this factor will continue to affect the level of annual inflation, it will be completely exhausted only in the third quarter," Nabiullina added.

"According to our estimate, the effect of ruble appreciation on inflation in 2017 is within 1% or slightly less than 1%; [the effect of] harvest is slightly below 0.5%," the banker said.

Ruble appreciation is still restricting inflation and its effect will be exhausted in early 2018, Nabiullina noted.

"Ruble appreciation is one more factor that continues restricting inflation so far. It largely occurred in the first half of this year. Its effect has almost completely reflected in prices and will be fully exhausted in early 2018," Nabiullina said.

Russia's GDP growth

Russia's GDP growth in 2018 will be comparable with the figures of 2017, she said.

"We have increased our estimates of economic growth rates for the next year. Right now we do not expect a slowdown to 1-1.5% next year and we believe that growth will continue at about the same pace as in 2017," she said.

Nabiullina noted that in 2019, the economic growth would slow down to 1-1.5%, followed by a return to 1.5-2% in 2020.

"In 2019, there will be a slight decline of economic growth to 1.5%, with its subsequent return to 2% in 2020," she said.

Key rate

The decision taken by the Central Bank to reduce the key rate by 0.5 percentage points (pp) to 7.75% is within the framework of gradual relaxation of the monetary policy, Nabiullina said.

"We believe the 0.5 pp step is within the scope of gradual softening of the monetary policy. We said earlier we assume 0.5 pp, 0.25 pp, and breaks. When we say now that we will continue gradual reduction, we indeed see the potential for the certain reduction. We are approaching the neutral policy," Nabiullina said.

"An opportunity is kept for a certain reduction of the key rate in the first half of next year. We will move gradually and will most likely take breaks, assessing the response of financial markets, domestic demand and consumer prices to already taken decisions on the key rate," the banker said.

Oil price

Oil price may drop to about $40 per barrel in 2019-2020, if the OPEC + oil production cut agreement is not extended after 2018, she said. 

"However, in the medium term, we have no grounds to abandon the conservative approach. If the [OPEC +] agreement is not extended, then in 2019-2020 there will be a gradual decline in oil prices, which we had expected earlier, slightly higher than $40 per barrel," she said.

"We increased oil prices in 2018 in the base scenario. We took into account the recently reached agreements of the oil exporting countries. Now, instead of $44 per barrel, our average oil price is at around $55 per barrel next year," Nabiullina said.

"Considering that now the forecast includes higher oil prices and a higher current account balance, we increased net capital outflow estimate for the next year from $10 bln to $16 bln," she said.


"Volatility may grow on certain market. From our point of view, it will not last long because the Central Bank has all the instruments to prevent growth of risks for the financial sector," the banker said.

The Bank of Russia can act as a buyer of Russian Eurobonds to support the market but the regulator will hardly take such a decision, Nabiullina said.

"We do not exclude this but we will not necessarily consider applying this tool," she noted.