Information Notice of Bank of Russia:
First. There is more confidence in steadily positive trends in the inflation dynamics. Consumer prices grew less than predicted. The annual inflation has stabilised at 7.3% and the annualised monthly inflation, seasonally adjusted, is about 5%. Inflation expectations of households and businesses continue to decrease. The situation in the global commodity markets was more favourable than expected and contributed to the inflation slowdown through the ruble exchange rate and food price movements (these factors’ influence is temporary and is subject to decrease, which is considered in the inflation forecast). The Bank of Russia marked down its inflation forecast for the end of 2016, to 5-6%. Considering the decision just made and retaining the current monetary policy stance, the annual inflation will be less than 5% in May 2017 to reach the 4% target in late 2017.
Second. Positive trends in the economy are not accompanied by a higher inflationary pressure. The figures of the GDP dynamics in 2016 Q1 and macroeconomic indicators for April confirm greater sustainability of the Russian economy to oil price fluctuations. Import substitution and non-commodity exports continue to expand and additional growth areas in manufacturing are taking shape. However, the changes in economic dynamics vary across the industries and regions. Investments continue to show a downward trend and a wide range of industries experience stagnation, including those that have traditionally been the sources of growth for the Russian economy. Yet positive shifts in the economy anticipate the beginning of its growth recovery. Quarterly GDP growth is expected no later than 2016 H2. The forecast predicts a GDP increase of 1.3% in 2017 and annual growth rate for output of goods and services remaining low in the following years. The forecast is based on a fairly conservative estimate of the annual average oil price, which is approximately $40 per barrel over the three-year horizon.
Third. Monetary conditions will still be moderately tight, despite a slight easing due to the lowering banking sector liquidity deficit. Real interest rates in the economy (adjusted for inflation expectations) will remain at the level that encourages savings and allows for demand for loans that does not cause an increase in inflationary pressure. In order to ensure operational control over the level and structure of market interest rates in the context of the emerging transition to the banking sector liquidity surplus, the Bank of Russia is ready to take a set of measures designed to mop up liquidity.
Fourth. The risks that inflation will not reach the target of 4% in 2017 declined, but still remain at a heightened level. The materialisation of these risks might cause a slowdown in the inflation reduction.
The Bank of Russia will consider the possibility of a further rate cut based on estimates for inflation risks and alignment of inflation decline with the forecast trajectory.