Cbanker: Russia’s annual inflation at 2.8–2.9% as of Monday

MOSCOW, Apr 10 (PRIME) -- Russia’s annual inflation amounted to 2.8–2.9% as of Monday, which is in line with the central bank’s expectations, Chairwoman Elvira Nabiullina said during an online news conference on Friday.

“In March, annual inflation accelerated to 2.5% from 2.3% in February. Weekly inflation over the past three weeks has been significantly higher than typical price increases for this time of the year. Correspondingly, the annual inflation rate as of April 6 (Monday) was already 2.8–2.9%. This is a faster return of annual inflation to the target, and it meets our expectations of short-term effects from a weakening exchange rate and an increase in demand for some goods in connection with measures to combat the epidemic,” she said.

The balance of risks for inflation will move towards disinflationary factors by the middle of the year, she added.

The fading nature of inflationary factors and the absence of secondary effects will allow the central bank to resume easing of its monetary policy, Nabiullina said. The central bank will base its decisions on the monetary policy on the conservative oil price forecast as before, she added.

The central bank is preparing a new macroeconomic forecast by the April meeting of the board of directors devoted to the key rate. The regulator will consider a reduction of the key rate as one of the options at the meeting on April 24, she added.

The Russian economy will decline this year, Nabiullina said.

“Under our estimates, this is not a forecast yet, gross domestic product (GDP) this year will be in the negative zone. We really revised our estimates compared to the previous ones due to the fact that the situation is developing very dynamically, and we see that this year there will be unfortunately negative economic growth,” she said.

The main blow to the economy will be in the second quarter, and recession may be avoided, the chairwoman said.

“Speaking about recession, these are usually two quarters of negative growth rates, we, as a basic assumption, assume that the main negative effect will be in the second quarter and the third quarter will be better in relation to the second and will be positive,” Nabiullina said.

“That’s why maybe we will be able to avoid recession.”

The situation on the Russian financial market started to improve this week, the volatility of the ruble rate and the stock market has decreased, and the Finance Ministry resumed OFZ bond auctions, Nabiullina said.

“The situation on the Russian financial market has improved slightly, the volatility of the exchange rate and the stock market is decreasing. There is a certain decrease in yields on the bond market. The Finance Ministry resumed holding OFZ (bond auctions) this week. The share of foreigners on the OFZ market remains stable – it is at the level of 30–31%,” she said.

The situation with liquidity at Russian banks has been relatively calm this week, she added.

“Banks transferred many of their functions to the remote mode, but their work continues. The sector remains stable. This week, the liquidity situation at all banks was relatively calm, and we did not conduct additional repo auctions,” she said.

Retail deposits with Russian banks grew by 0.5% during the last week of March offsetting the decline in previous weeks.

The central bank will work with banks to issue interest-free loans to entrepreneurs for the payment of salaries, the rate of issuance does not correspond to the severity of the problem, she said.

“I can say that for the salary part of the program, participating banks received more than 900 applications for almost 6 billion rubles, 234 applications have been satisfied so far for a very small amount – 76 million rubles. The system is swinging slowly, it cannot satisfy us and does not correspond the acuteness of the problem, so here we will work with banks to make such a mechanism work,” she said.

The central bank expects that banks will be more flexible while making decisions on loan restructuring due to coronavirus, Nabiullina said.

“We expect that taking these measures into account, banks will be more flexible in relation to their clients, which will make it easier for the clients to go through this crisis, as a result, banks themselves will have less problem loans in the future.”

So far, the central bank is recording a large proportion of bank’s refusals to restructure loans to individuals and will analyze the ratio between received and satisfied applications for restructuring loans due to coronavirus.

Demand for mortgage loans in Russia persists despite the spread of coronavirus, Nabiullina also said.

“During this period, it is really very important to support mortgage lending; by the way, the demand for mortgages, however, exists, it even was increased some time ago, so we introduced remote mechanisms for obtaining mortgages to make it more convenient for people,” she said.

Nabiullina also said the central bank does not currently see any threats to the country’s financial stability and there is no need to start currency interventions on the market.

End