Russia: CBR improves baseline macroeconomic forecast to account for high oil prices

CBR revised upwards GDP forecasts in the baseline macroeconomic scenario underpinning CBR’s monetary policy, according to the latest reportpublished on Friday. The baseline forecast was changed in line with the rise of crude oil prices in Apr-May to over USD 40 per barrel which improved CBR’s expectations about the average oil prices over the period. Now CBR expects USD 40 per barrel crude oil prices over the three-year forecast horizon and slightly lower (USD 38) in 2016. Based on the change of assumptions, Russia’s GDP is now expected to contract more slowly -0.7-0.3% in 2016 and return to over 1% growth in 2017 backed not only by net exports but also by the increase of domestic demand. The CA surplus will continue to gradually fall along with the recovery of imports but net capital outflows will remain at a relatively low level and would not threaten forex reserves. CPI inflation should continue to decelerate to 5-6% by end of 2016 which is also better than the 6-7% expected three months ago. CBR maintains that inflation will decelerate to the target of 4% by end of 2017.

Apart from the baseline scenario, CBR drafted a risk and optimistic versions. In the optimistic scenario, CBR expects faster recovery of crude oil prices (USD 50) and GDP growth (0% in 2016, 1.5-2% in 2017-2018) while inflation will fall in line with the baseline expectations. The risk scenario envisages hard landing in China, faster normalization of Fed’s rate policy and a new oil price shock. These factor will result in slower GDP recovery (-1.2-0.9% in 2016-2017) and faster inflation (6.5-7% end of 2016) increasing chances for exceeding the 4% target. Such a development will require tighter monetary policy, CBR said. The main risks to the baseline forecast come from internal factors, mainly uncertain fiscal policy (pension and wage indexation) and inflationary expectations.

Baseline macroeconomic forecast Jun 2016 (%)
  2016 2017 2018
  Jun-16 Mar-16 Jun-16 Mar-16 Jun-16 Mar-16
Urals (USD) 38 30 40 35 40 40
CPI inflation eop 5-6 6-7 4 4 4 4
GDP -0.7-0.3 -2.8 1.1-1.4 -1 1.6-2.0 1.5-2.0
Final consumption -3.2-2.8 -5 1.3-1.7 -1.2 2.0-2.4 -6
Household consumption -3.6-3.2 -5.9 1.4-1.8 -1.6 2.4-2.8 -8
GCF -1.7-1.3 -15.3 0.7-1.1 -1.8 1.9-2.3 0.5-1.7
GFCF -1.8-1.5 -16.6 1.9-2.3 -1.1 1.8-2.2 0.1-0.6
Net exports 22.9-25.4 24.1-25.2 0.5-3.0 5.2-7.6 -3.3-0.8 -14.5
Money supply 10-13 8-11 9-11 10-12 7-9 8-10
Monetary base 2-4 4-6 4-6
Lending growth 5-8 6-8 7-9
CA balance (USD bn) 40 40 32 44 29 51
Financial account -25 -40 -25 -44 -29 -51
Change in reserves 15 0 7 0 0 0
Source: CBR

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