Statements by Bank of Russia Governor E. Nabiullina in follow-up to Board meeting
We believe that there is less room for further reduction of the key rate.
Annual inflation is slowing down, though the effect of disinflationary factors will be weakening gradually in the future.
The current price growth rates will exceed today's near-zero values. At the same time, we do not rule out that annual inflation in H1 2023 will temporarily fall below the target due to the high base effect.
We believe that the structural transformation of the economy will come amid a faster growth in prices, despite some periods of their adjustment. This is an important factor that we consider when forecasting inflation above the target next year and implementing our monetary policy.
We are concerned that households’ inflation expectations remain elevated and have even risen slightly, despite several months of decline in the overall price level. This differs fr om previous periods of inflation deceleration, for example, in 2019.
The economic situation is better than expected
The decline in GDP in Q2 is close to our forecast. At the same time, there are some indicators of a slight improvement of the situation in Q3, although it remains very uneven across sectors and regions.
The structural transformation of the economy will inevitably entail the release of workforce at production facilities that become economically irrational and the migration of workforce to the places wh ere new opportunities open up.
We will take into account all these trends in an updated forecast to be presented in October. With a high probability, the GDP forecast for this year will be improved.
Monetary conditions are currently neutral in general, according to our assessment.
The structure of household savings with banks is adjusting to the previous changes in monetary conditions.
The demand of businesses and households for loans is increasing. Corporate lending is growing at a high pace after a pause in spring.
In the retail lending, the growth was mostly driven by mortgages.
Disinflationary risks may manifest themselves mainly in the short term. These include a more significant pass-through of the earlier ruble appreciation to prices, preserving households’ propensity to save at the same or higher level, as well as the redirection of exports to the domestic market.
In the medium term, pro-inflationary risks still prevail. These include a decrease in the foreign currency revenues due to the already announced sanctions. Geopolitical risks remain significant.
The consumer activity is in the zone of high uncertainty.
An important issue for us is the budget. In recent months, budget expenditures have been growing at a rapid rate. This may also create pro-inflationary effects.
Monetary policy prospects
The key rate reduction cycle is likely close to its end. There are many signs showing that current inflationary pressures stop weakening.
We estimate the range of the short-run neutral rate above the range of the long-run one (which is 5-6%).