RUSSIAN ECONOMIC OUTLOOK AND MONETARY POLICY. RUSSIA S ECONOMIC OUTLOOK AND MONETARY POLICY December 2018

Transcription

1 4% RUSSIA S ECONOMIC OUTLOOK AND December 1

2 2 Consumer prices (1) At the end of 1, inflation is expected to be close to 4%, which corresponds to the Bank of Russia s target 2 Inflation indicators, % YoY Core CPI CPI PPI for industrial products in the domestic market: food production Sources: Rosstat, Bank of Russia

3 3 Consumer prices (2) This November s upward movement of inflation was largely driven by annual food price growth accelerating from 2.7% to 3.%. Prices are further adjusting to the ruble exchange rate that has weakened since the beginning of the year and to the VAT increase scheduled to take effect from 1 January 19 Contribution of components to the change in annual inflation in November 1, ppts 14 CPI components, % YoY 14 October Food goods (excluding vegetables, potatoes and fruits) 1 1 Fruits and vegetables (including potatoes) Non-food goods (excluding petrol) 6 6 Regulated tariffs and petrol 4 4 Services (excluding regulated tariffs) 2 2 Omissions November ,4 3,6 3, 4, Non-food goods Food goods Services CPI Sources: Rosstat, Bank of Russia

4 4 Inflation expectations summary 17 1 Horizon I II III Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Inflation expectations (absolute numbers), % Households FOM Next 12 months FOM (observed inflation) Prev. 12 months FOM (Bank of Russia calculations) Next 12 months Professional analysts Bloomberg Interfax Reuters Bloomberg Interfax Reuters Financial markets OFZ IN (option not subtracted) Next years OFZ IN (option not subtracted) Next 1 years Inflation expectations (balanced index*) Households FOM Next 12 months FOM Next month Businesses Bank of Russia monitoring Next 3 months PMI input prices Next month PMI output prices Next month Retail prices (Rosstat) Next quarter Tariffs (Rosstat) Next quarter 4 3 Change: - Inflation expectations become better (more than 1 standard deviation) - Inflation expectations become better (less than 1 standard deviation) - Inflation expectations unchanged (±,2 standard deviations) - Inflation expectations become worse (less than 1 standard deviation) - Inflation expectations become worse (more than 1 standard deviation) *Balanced index is the difference between the shares of those who expect prices to rise and to fall Sources: FOM, Rosstat, Bloomberg, Reuters, Bank of Russia etc.

5 Inflation expectations households In November, household inflation expectations increased to 9.% (+. ppts) and once again got close to the observed inflation Observed inflation Expected inflation CPI Source: LLC infom

6 Balance of replies (SA), % 6 Inflation expectations - firms Short-term inflation expectations of firms are rising ahead of the VAT increase 2 Replies of firms to the question: How will the prices of final goods change in the upcoming 3 months (increase/decrease)? Businesses - total Mining and quarrying Manufacturing Agriculture Construction Wholesale and retail trade Transportation and storage Services Sources: Bank of Russia s monitoring of enterprises survey

7 7 Economic activity Industrial production keeps expanding at around 3% p.a., but the mix of growth entirely shifted from manufacturing to upstream resource industries. Manufacturing PMI reverted to expansion territory, driven by new export orders Industrial production with contributions (adjusted for calendar factor), % YoY Calendar factor 17 1 Mining and quarrying Manufacturing Utilities (before 1) Utilities: electricity, gaz and steam (since 1) Utilities: water, pollution control activities (since 1) Omissions Industrial output (right axis), % Sources: Rosstat, Bank of Russia PMI in manufacturing PMI in manufacturing (new orders) PMI in manufacturing (new export orders)

8 Retail sales and savings rate Consumer demand growth is moderating with retail sales at +1.9% in October, still mostly driven by non-food sales. Savings rate bounced back to 6%, which is still well below 1-17 averages. 1 Retail trade turnover and real wages dynamics 1 Contributions to the savings rate (seasonally adjusted), ppts 2% 6,% 12,% 1,3% 9,1% 4,% 2% % % Non-food goods, pps Food goods, pps Retail trade turnover, % YoY Real wages (left axis), % YoY 1% 1% % % -% -1% -1% -% Equity Currency assets (currency, currency deposits) Ruble financial assets (deposits, stock and cash) Borrowing Savings rate 1% 1% % % -% -1% -1% -% Sources: Rosstat, Bank of Russia etc.

9 9 Deposits households In November rouble deposits were marginally down, but FX deposits gained after three months of outflows 1,2 Ruble deposits of households in Russian banks, trln rub 22 4 FX deposits of households in Russian banks, bln USD 99 1, , 2 9, ,4,2, , , , Monthly change The amount of deposits (right axis) Monthly change The amount of deposits (right axis) Source: Bank of Russia

10 1 Deposits share of FX deposits Fairly stable since the start of the year for households and is trending down for corporates 16 Contribution of factors to the annual change of household s deposit dollarisation, ppts 4 Contribution of factors to the annual change of NFO s dollarisation of accounts and deposits, ppts Ruble exchange rate FX accounts balance Ruble accounts balance Overall change Change without foreign currency revaluation Level (right axis), % Ruble exchange rate FX accounts balance Ruble accounts balance Overall change Change without foreign currency revaluation Level (right axis), % Source: Bank of Russia

11 11 Loans growth rate still on the rise, both for retail and corporate lending Contribution of different components to the bank lending growth, ppts Loans to large enterprises Loans to small and medium companies Mortgage loans Consumer loans Revaluation of foreign currency loans Total loan portfolio, % Total loan portfolio*, % * Excluding foreign currency revaluation Source: Bank of Russia

12 12 Monetary policy and inflation around the globe In 19 the rise in interest rates is expected to continue in developed and most of the developing economies Current situation M (bps) Nov.1 6M (ppts) Q4 19 to the current rate (bps) Analysts expectations Q4 19 Interest rate Inflation (YoY) Interest rate Inflation (YoY) to current inflation (ppts) Rise is expected ( ) / Reduction is expected ( ) Developed economies USA (upper bound) 2.2% (+) 2.2% (-6) 3.2% (+1) 2.3% (+1) Canada 1.7% (+) 2.4% (+) 2.% (+7) 2.2% (-) United Kingdom.7% (+2) 2.4% (-) 1.% (+2) 2.% (-4) Norway (Deposit Rate).7% (+2) 3.% (+1) 1.2% (+) 2.2% (-13) Eurozone (Main refinancing rate).% (-) 2.% (+1).% (+) 1.% (-) Japan (Target rate) -.1% (-) 1.4% (+) -.4% (+6) 1.9% (+) Australia 1.% (-) 1.9% (-) 1.7% (+2) 2.3% (+4) Switzerland -.7% (-).9% (+1) -.% (+2).9% (-) Developing economies Argentina (LELIQ 7-D Notes Rate) 9.13% (+1913) 4.9% (+) 32.% (-2713) 27.% (-19) Turkey 24.% (+7) 21.6% (+9) 24.% (-) 14.7% (-69) - Indonesia 6.% (+1) 3.2% (-) 6.% (+) 4.1% (+9) India (Repo Rate) 6.% (+) 2.3% (-26) 7.% (+).1% (+2) Mexico.% (+) 4.7% (+).% (-) 3.7% (-1) - South Africa 6.7% (+2).2% (+) 7.% (+2).2% (-) Chile 2.7% (+2) 2.% (+) 3.63% (+) 3.% (+) South Korea 1.7% (+2) 2.% (+) 2.% (+2) 1.% (-) China (Lending Rate) 4.3% (-) 2.2% (+4) 4.3% (-) 2.3% (+1) - Brazil 6.% (-) 4.1% (+1).% (+1) 4.3% (+) Poland 1.% (-) 1.2% (-) 1.% (-) 2.4% (+1) - Taiwan 1.3% (-).3% (-144) 1.% (+12) 1.4% (+11) Inflation data for Canada, UK, Argentina is as of October 1. For Australia as of Q3 1. For other countries as of November 1. Source: Bloomberg

13 13 Financial markets global Moderation in US Treasuries yields, downtrend in stocks, firmer US dollar USD , 1,1 1 1,1 9 1,2 9 1,2 1, DXY EURUSD (right axis, inverted) US Treasuries 3, 3, 2, 2, 1, 1,,, Treasuries 2Y Treasuries 1Y S&P S&P VIX VIX Stoxx Stoxx6 MSCI EM MSCI EM Source: Reuters Bank of Russia s Board meeting

14 14 Financial markets selected EM countries China India Brazil, 4, 4,6 4,4 4,2 4, 3, 3,6 3,4 3,2 3, 17 1 Policy rate 1-year government bond yield USD exchange rate (right axis),16 1,16,12,14,144, Policy rate 1-year government bond yield USD exchange rate (right axis),17,16,1,1,14, Policy rate 1-year government bond yield USD exchange rate (right axis),3,32,29,26,23, Mexico South Africa Turkey 1,6 1,9 3,3 9,6 9,4 2,26,2,7,22 7,4 7,72 1,1 6,44 6,66 1, Policy rate 1-year government bond yield USD exchange rate (right axis), Policy rate 1-year government bond yield USD exchange rate (right axis), Policy rate 1-year government bond yield USD exchange rate (right axis),1 Sources: Bloomberg, Reuters Bank of Russia s Board meeting

15 1 Financial markets Russia and Oil OFZ yields USDRUB Equity indexes 11, 1, 9,, 7, 6,, Y OFZ yield 1Y OFZ yield USDRUB MOEX RTS (right axis) CDS CDS Russia CDS EM Sources: Reuters, Bloomberg, Bank of Russia 3M ruble exchange rate volatility USDRUB 3M VOL Bank of Russia s Board meeting Oil price Brent WTI

16 16 Oil price assumptions Baseline trajectory assumes faster convergence to the longer-term steadystate; now at $/bbl for Urals in 19 and onwards (October forecast: 63--) 11 Oil price path, USD per barrel Baseline (December) High oil prices (December) Fact Baseline (October) Unchanged oil prices (October) Source: Monetary policy report 4 (December 1)

17 17 Bank of Russia s baseline scenario (Dec 1) Annual inflation will slow down to 4% in the first half of when the effects of the ruble s weakening and the VAT rise peter out Higher potential growth rates in -21 if the planned fiscal and structural measures are successfully implemented Source: Monetary policy report 4 (December 1)

18 1 Bank of Russia s baseline scenario (Dec 1) details Increase compared to the previous period in % (unless noted otherwise) 17 (fact/ estimate) Baseline* Urals price (average for year), USD per barrel 3 7 Inflation in December compared to previous December, % Inflation (average for year) compared to the previous year, % GDP** Final consumption expenditures - of households Gross capital formation - gross fixed capital formation Exports Imports (-1.-.) Money supply (using the national definition) Lending to non-financial organisations and households, in roubles and foreign currencies*** Lending to non-financial and financial organisations, in rubles and foreign currencies - Lending to households, in rubles and foreign currencies * Published in Monetary policy report 4 (December 1) ** 17 data Bank of Russia estimate with Rosstat-revised industrial production data factored in *** Banking sector s lending to the economy is defined as all the claims of the banking sector to financial and non-financial organisations as well as households in Russian or foreign currency and precious metals, including loans provided (with overdue debt counting as well), overdue interest on loans, credit institutions investment in equity and debt securities and promissory notes, any forms of participating in the equity of financial and non-financial organisations, and any other receivables for settlements with financial and non-financial organisations and households

19 19 Bank of Russia s baseline scenario (Dec 1) balance of payments USD billions 17 (estimate) Baseline* Current account Trade balance Export Import Balance of services Export Import Balance of primary and secondary income Capital account Financial transactions account (reserve assets excluded) Public administration and central banks Private sector Net errors and omissions 4 Change in FX reserves (+ is for decrease, - is for growth) * Using BPM methodology. Due to rounding total results may differ from the sum of respective values Published in Monetary policy report 4 (December 1)

20 Bank of Russian FX operations related to the fiscal rule The Bank of Russia decided to resume regular foreign currency purchases in the domestic market as part of the fiscal rule implementation from 1 January 19 The decision was made given the stabilisation in the domestic financial market The decision on the foreign currency purchases in the domestic market that were postponed in 1 will be taken after regular purchases resume The postponed purchases may be carried out gradually in 19 and in subsequent years Source: Press release «On fiscal rule-based operations» as of

21 21 Monetary policy decision, 14 December 1 Inflation and inflation expectations Prices continue to adjust to the ruble weakening since the beginning of the year Consumer price growth starts to react to the the VAT increase pending on 1 January 19 Uncertainty persists over the subsequent movements of inflation expectations At the end of 1, inflation is expected to be close to 4%, which corresponds to the Bank of Russia s target. 19 forecast,-,% (unchanged) The forecast takes into account the BoR s decision to resume regular foreign currency purchases Annual inflation will slow down to 4% in the first half of when the effects of the ruble s weakening and the VAT rise are out of the calculation window Decision The Bank of Russia raises the key rate by 2 bps to 7.7% p.a. Signal Monetary conditions: some further tightening still ongoing Economic activity Russian economic growth slowed somewhat, but remains close to potential The Bank of Russia s outlook for the mid-term growth prospects remains unchanged In 19, the forthcoming VAT increase might have a slight constraining effect on business activity (mostly in the beginning of the year) The following years might see higher growth rates as the planned structural measures are implemented Pro-inflationary risks remain elevated, especially over a short-term horizon The decision taken is proactive in nature The main risks: (1) сontinuing uncertainty over future external conditions and their impact on financial asset prices, (2) increased risks of supply exceeding demand in the oil market in 19, (3) secondary effects from the VAT-induced inflation spike in 1Q19 Moderate risks estimates are mostly unchanged: (4) wage movements, () possible changes in consumer behavior, () budget expenditures The Bank of Russia will consider the necessity of further increases in the key rate, taking into account inflation and economic dynamics against the forecast, as well as risks posed by external conditions and the reaction of financial markets

22 22 Money market conditions In the light of the persistent structural surplus RUONIA remains moderately below the key rate; in 4Q the spread so far averaged -21bp, same as in 3Q, and the least deviation from the key rate since 2Q17 11, 1, 1, 9, 9,,, 7, 7, 6, 6,,, 4, The dynamics of the key rate and MIACR, % p.a. 4, 17 1 Source: Bank of Russia MIACR-key rate spread (pps, right axis) BoR key rate (right axis) MIACR, 4, 4, 3, 3, 2, 2, 1, 1,,, -, -1, The structure of Bank of Russia s liquidity management operations, bln rubles Structural surplus of 2,3 trln rub. as of Amount outstanding on other refinancing operations Standing REPO facilities REPO auctions Bank of Russia bonds Standing deposit facilities Deposit auctions