The Central Bank kept the key rate at 4.25%
‘Inflation expectations of the population and business remain at an elevated level. The accelerating pace of vaccination, as well as expectations of additional budget support measures in individual countries, are contributing to higher prices in the financial and commodity markets. Under these conditions, disinflationary risks have ceased to prevail on the annual horizon, and the forecast of the Bank of Russia for inflation for 2021 has been raised to 3.7–4.2%. In the future, taking into account the current monetary policy, inflation will be near 4%, said in the Central Bank.
The regulator believes that the restraining influence of domestic demand on price dynamics is weakening with the continuing inflationary pressure from the costs of enterprises. The most noticeable are pro-inflationary factors on the supply side, such as the shortage of labor in a number of specialties and the additional costs of enterprises to comply with anti-epidemic standards.
According to the forecast of the Bank of Russia, in February-March, annual inflation will reach its maximum and will start to decline. The trajectory of the decline will be determined by the timing of the exhaustion of pro-inflationary factors, as well as the effects of the 2020 base.
GDP declined by 3.1% in 2020. This is less than the Bank of Russia expected earlier. The economic recovery, according to the Bank of Russia, continued in the fourth quarter of 2020. The deterioration of the epidemic situation in Russia and in the world has had a much less significant deterrent effect on the economy than expected. This is due to the point-by-point nature of restrictive measures and the adaptation of citizens and businesses to the new conditions. In the fourth quarter of 2020, the recovery of real incomes of the population continued and the decline in unemployment began.
Short-term pro-inflationary risks are also associated with increased volatility in global markets, including under the influence of various geopolitical events, which may affect exchange rate and inflation expectations. In addition, in the context of a faster-than-expected global economic recovery and, consequently, the exhaustion of the need for unprecedented stimulus policies in developed economies, it is possible to start normalizing monetary policy in these countries earlier. This may become an additional factor in the growth of volatility in the global financial markets.