Nabiullina: ‘We should be more careful about the development of the situation’
The Bank of Russia kept rates unchanged and lowered forecasts for 2020 and 2021
Russia’s financial authorities decided to keep the key interest rate steady for the second month in a row after lowering it for more than a year. They also revised growth forecasts downwards citing “some slowdown in the recovery” due to a second global wave of COVID-19 infection.
Russia’s monetary policy decision-makers are preparing for continued uncertainty and a new wave of coronavirus cases sweeping much of the world, says CNBC. The Bank of Russia chose to keep its key rate unchanged both in September and October. The rate stays at 4,25%, which is 350 basis points lower compared to June 2019.
“We made a pause in September and October assessing the short-term inflationary risks and some risks related to financial stability, the market, that’s why we think we should be more careful about the development of the situation with the pandemic, with geopolitical and other issues,” commented head of the Central Bank Elvira Nabiullina on 28 October. She added that the regulator still had some room for the reduction. “It is limited, it’s not so much as it was before, but we will decide how and when to use this room according to incoming data,” she said.
According to Nabiullina, the bank is going to stick to this cautious policy “because the COVID escalation in autumn increases the disinflationary risks and the risks for the demand, and we see that in medium-term perspective the disinflationary risks will prevail, of course”. It will last at least through the end of 2020 “instead of decisions of cutting rates that we have made before”.
Although Russia’s economic recovery in the third quarter was “very dynamic” due to domestic goods consumption, the second wave of COVID-19 in much of the world made the Central Bank revise down its forecasts. “The autumn COVID-19 escalation has led to some slowdown in the recovery, and that is why we revised our forecast [...], and we expect this year the economy will contract by between 4% and 5%,” Nabiullina said. The regulator also brought down its forecast for 2021. According to new expectations, the growth may total from 3% to 4% and will be led by internal consumption.
The Central Bank’s forecasts still look optimistic compared to those of the World Bank, which expects Russia’s economy to contract by 6% in 2020 and to struggle to match pre-pandemic levels even in 2022. In its June outlook, the international institution also said that household consumption was likely to lead the recovery in Russia but highlighted such risks as geopolitical uncertainty and its impact on oil prices.