(Bloomberg) — Russia’s central bank said the economy will recover this year, growing as much as 2% as the the impact of sanctions imposed over the invasion of Ukraine fades.
(Bloomberg) — Russia’s central bank said the economy will recover this year, growing as much as 2% as the the impact of sanctions imposed over the invasion of Ukraine fades.
Gross domestic product is likely to reach pre-war levels by the end of 2024, policymakers said on Friday. That’s far earlier than many economists had expected and reflects the more-limited impact of the restrictions the US and its allies have slapped on Russia.
The central bank unveiled its latest forecasts as it held the key interest rate at 7.5%, where it’s been since September. Its earlier projections showed an economic contraction was possible in 2023.
“Economic activity is growing faster than the Bank of Russia assumed in February’s forecast,” policymakers said in a statement. “This reflects both an expansion in domestic demand and the ongoing processes of transformation of the Russian economy.”
The strength of the economy could allow Governor Elvira Nabiullina to focus on tempering what the central bank is calling “meaningful inflation risks” even as price growth has slowed below its 4% target.
On Friday, the Bank of Russia retained a hawkish bias that leaves it the option for hiking rates in the months ahead. Demand is bouncing back as the economy adapts faster than expected while supply is failing to keep up, Nabiullina told reporters in Moscow after the decision.
“Considering the lag in the effect of monetary policy, we would have to promptly respond to this by raising the key rate,” she said. “We continue to think a rate increase is more likely.”
The ruble gained after the rate announcement and traded over 2% stronger against the dollar. While still among the worst performers in emerging markets this year, it’s been recouping some losses in recent days.
What Bloomberg Economics Says…
“Nabiullina’s message remains unchanged: inflation may be moderate for now, but an increasingly hot labor market, a softer currency and growing budget spending could lift it in the months ahead. The signaling does not indicate an imminent hike, but policy rates will likely rise in the second half of 2023 if public spending continues to exceed expectations and ruble remains weak.”
—Alexander Isakov, Russia economist.
The central bank’s updated forecasts also see inflation slowing slightly more than it had anticipated to a range of 4.5%-6.5% at year-end.
The dilemma for Nabiullina is how to time a withdrawal of monetary stimulus. Though facing little pressure to act, the Bank of Russia is having to contend with a sharp liftoff of fiscal spending, a deterioration in trade and a record dearth of workers.
Among the more immediate concerns are developments in the labor market that threaten to push up real wages. A central bank survey found that companies in the first quarter experienced the biggest worker shortage since monitoring began in 1998.
An equal worry is the stretched budget, with its shortfall as of April 25 already almost 50% wider than the Finance Ministry’s full-year target for 2023.
Blamed for Putin’s Inflation Abroad, Russia Sees Prices Cool
“Despite such a harsh signal,” risks to inflation have yet to become “facts,” said Sofya Donets, economist at Renaissance Capital.
“Decisions in the coming months will depend on the expectations of the population, the pace of recovery in consumption and the dynamics of the ruble,” she said. “We expect all three to lower rather than raise pressure on prices.”
(Updates with Nabiullina’s comments starting in sixth paragraph.)
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