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Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting 18 December 2020

18 December 2020

Today, we have kept our key rate at the level of 4.25% per annum.

As regards our view of the economic situation, there have been no significant changes since October’s meeting of the Board of Directors. However, inflation is driven by diverse factors. The Board of Directors now does not consider that the ratio of proinflationary and disinflationary factors and risks is clearly shifted towards disinflationary ones, as has been estimated earlier.

I would like to dwell on the aspects we were taking into account when making our decision today.

Firstly, current annual inflation notably exceeds the path assumed in our October’s forecast. Inflation is expected to be in the range of 4.6–4.9% as of the end of 2020. Price growth has accelerated due to a number of factors, including the situation in individual food markets. Prices have become more volatile in these markets primarily because of the rise in global food prices and the weaker ruble.

Exchange rate movements are also affecting non-food prices. According to our estimates, prices are driven by the pass-through of not only the ruble’s weakening in autumn, but also its changes since spring 2020. In spring, manufacturers and retailers could defer the pass-through of the weaker ruble to prices amid subdued demand and inventories accumulated earlier at previous input prices. Moreover, costs are pushing inflation upwards for other reasons as well, namely a shortage of manpower in certain industries, expenses to ensure compliance with additional sanitary and epidemiological rules, and possible disruptions in supplies due to the aggravation of the pandemic situation.

Of course, the acceleration of current inflation itself should not significantly impact our monetary policy, but there are signs suggesting that proinflationary trends may become longer-lasting. This is evidenced by a material rise in households’ and businesses’ inflation expectations.

Increased inflation expectations may induce secondary effects. This is another factor which we took into account.

There are signs that secondary effects have already started to manifest themselves. What are the reasons behind them? A considerable rise in prices for individual frequently purchased products, even when it is driven by one-off factors, makes people expect an increase in prices for a broader range of goods and services. This in turn explains the readiness to pay more and pushes prices upwards. Actually, we are already observing such an environment, which once again proves that households’ inflation expectations are currently not anchored yet.

When I say that they are not anchored, I do not imply the level of households’ inflation expectations, but rather their response to one-off factors. The fact that households’ inflation expectations are significantly higher than current inflation is typical not only of Russia, but of a whole range of countries (even where inflation is very low). In terms of monetary policy, this is the sensitivity of inflation expectations to temporary or local factors which induces risks, rather than the fact that households’ inflation expectations exceed inflation measures.

This is clear from the analysis of the reasons causing inflation deviation away from our October’s forecast. This deviation is quite notable — +0.7 percentage points. According to preliminary estimates, 0.2 percentage points of this deviation stem from a faster rise in sugar and sunflower oil prices and 0.3 percentage points — from the growth of grain export prices and their pass-through to prices for both bakery products and a broader range of food products. The remaining 0.2 percentage points are interpreted as additional steady inflationary pressure. It may result from both a faster revival of demand in a number of industries already facing supply-side constraints and secondary effects brought about by increased inflation expectations. This is what may impact a steady level of inflationary pressure in the future as well.

Therefore, today it is rather important how the situation will be unfolding in the future, including how inflation expectations will be changing and whether secondary effects may become more intense. This may result in a longer-lasting influence of one-off factors on prices.

Moreover, we should take into account that a rise in inflation expectations may speed up the growth of the demand for consumer lending which has already been expanding materially amid the accommodative monetary policy.

Monetary conditions are the third factor we discussed when making our decision. Monetary conditions remain accommodative. Coupled with the Government’s support measures, this promotes lending across all segments, including the households, corporates, and small and medium-sized businesses. The annual growth of corporate lending reached its five-year high in October. The offering of corporate bonds has also been expanding. Mortgage lending continues to increase significantly.

The portion of subsidised mortgage loans slightly contracted in October, but still equals nearly 30% of the disbursements. Concessional lending terms will remain in place until the end of 2021 H1. A number of programmes launched to support corporate lending have already been terminated. We are going to monitor how market interest rates and non-price lending conditions will be adjusting in this situation.

The current economic situation is another essential factor influencing our decisions. The epidemiological situation has worsened today, which expectedly has a restraining effect, but this impact is currently considerably lower than in 2020 Q2.

Although the situation is not uniform across industries, the decrease in economic activity is not as drastic as in spring and early summer when large-scale anti-pandemic restrictions were in place. Furthermore, companies and households have already adjusted to the changed environment to a certain extent, including additional requirements. Therefore, we may rather talk of a pause in recovery processes.

We can observe that economic trends and financial flows are changing unevenly. They have returned to normal or even exceeded this level in a number of sectors, while other industries are far from a complete recovery. Specifically, industries manufacturing and selling consumer and investment goods have increased their financial flows above pre-pandemic levels. In contrast, sectors producing intermediate goods (that is, intended for further processing) and many consumer service industries are still to restore their financial flows and business activity.

If we estimate the year 2020 in general, GDP will decline by about 4% owing to high performance in Q3. The economy bounced back significantly in response to the easing of restrictions and support measures. It is also worth noting that, amid limited opportunities to travel abroad this year, households kept over 1.5 trillion rubles earlier spent for outbound tourism. In 2020, these funds could partially be saved, but a portion of this amount was spent in Russia, propping up domestic demand.

Fiscal measures provide significant support to the economy. This year, budget spending increased by over 14% against 2019.

Recovery growth is expected to resume steadily in spring 2021.

Given the economic situation and price movements, the ratio of proinflationary and disinflationary factors and risks has altered considerably.

Indeed, demand trends, especially amid the drastic aggravation of the epidemiological situation, continue to contain price growth. However, this impact is currently offset by the above-mentioned proinflationary factors. As I have already said, we will assess whether these factors become steady against the backdrop of increased inflation expectations.

Moreover, the influence of demand on prices will also depend on future changes in the epidemiological situation, the pace of recovery processes when vaccines become widely used, and an improvement of consumer sentiment and business expectations. As we could observe in summer and early autumn, when the situation returns to normal, the recovery may be sufficiently quick.

At the moment, we consider it too early to adjust our medium-term inflation forecast since it is necessary to also analyse the effect of competing factors on price movements. As regards the near future, our preliminary estimates show that annual inflation will approximate 5% in 2021 Q1. Further on, if the influence of one-off factors diminishes rather fast, it will trend down and return to 4% by mid-2021. Given the accommodative monetary policy pursued, inflation is expected to equal 3.5–4.0% by the end of 2021, subsequently stabilising close to 4%. We will carry out an additional analysis to assess whether there are grounds for adjusting our forecast in February, for the core meeting on the key rate.

As regards other risks for medium-term economic development and inflation, their estimate has remained unchanged overall.

Various geopolitical risks are still relevant — they may provoke fluctuations in financial markets, affect exchange rate expectations and sentiments, and influence trends in the Russian and global economies.

As always, further changes in budget spending are a critical factor. This has a considerable influence on our monetary policy decisions.

There is still uncertainty about the estimate of the pandemic impact on the Russian economy’s potential, especially amid the current worsening of the epidemiological situation.

Given such highly uneven trends in the economy and price movements, we will need to carry out an additional analysis of how the situation will be changing and whether we still have some room for cutting the key rate when making our key rate decisions in the future. It is hard to affirm this now. If the impact of one-off factors wanes quickly and inflation expectations reverse, it is entirely possible that there may be grounds for a further reduction in the key rate, yet this will not necessarily be the case.

I would also like to emphasise that it is now crucial to maintain the robustness of the monetary policy to various scenarios. Our policy is aimed at keeping inflation close to 4% under any scenario of future developments.

We are ending this year with another important step in our communication. We are starting to release our regular report ‘Regional Economy: Commentaries by Bank of Russia Main Branches’ on the Bank of Russia website. This report is prepared by our regional branches for the Board of Directors’ key rate meetings and will contain the most up-to-date information on the situation in the Russian regions. When preparing for decision-making, we usually consider economic trends in Russia in general and across regions and assess both statistics and survey findings. This helps us better understand the economic situation and its specifics.

We are publishing the first issue of the report today and are going to release it on a regular basis, eight times a year, prior to the quiet period. We hope that this material will be interesting and useful to a wide range of readers.

Q&A for the Media

QUESTION from Reuters:

Has the Bank of Russia changed its view on the key rate path in 2021 now that inflation has accelerated? Is the Central Bank planning to launch publications of the key rate path as early as February 2021?


Undoubtedly, our view of the ratio between proinflationary and disinflationary risks has slightly changed, as I have mentioned. We are no longer seeing the predominance of disinflationary risks. Our views of the key rate path will mainly be driven by new incoming data.

Regarding the publication of the rate path, indeed, it is indeed our intention to begin publishing this path next year, most likely in the first six months. We will specify the start date of such publications later.

QUESTION from Interfax:

Good afternoon. You have already said that the potential for a further reduction in the key rate is not clear at this point in time. But could you confirm there is a chance of the key rate going below 4.25% next year? When do you expect monetary policy normalisation cycle to begin? Is it coming next year? According to many analysts, in the second six months of the year, you could shift to lifting the key rate and initiate a transition to neutral monetary policy in the future.

And one more question, please. Your press release notes that growing prices for a number of products come with inflationary risks. But, as we know, the Government is taking action to check these prices. Are these policies expected to undercut the inflationary risks? What is your assessment of these steps of the Government? Do you believe they are warranted? Thank you.


On the chances of a further reduction in the key rate: we uphold the view there may be some potential for that, although our view is no longer as clear-cut as before. We will have to make calculations to confirm that this potential is in place, in the context of multiple uncertainties in economic development and inflation processes. So, we will be gauging this potential. The probability of a further reduction is not impossible but it is no longer as strong.

Having said that, we expect the monetary policy stance to remain soft throughout 2021, that is, monetary policy is set to be loose. Both the timeframe and paces of a normalisation will be contingent on how the situation unfolds.

Let me reiterate: now is a time of multiple uncertainties, so we will proceed as the situation may require.

As for proinflationary effects and pressures induced by the hike in prices for some products, primarily consumer goods, this hike has indeed influenced inflation. For example, we assumed that sugar and sunflower oil would contribute to annual inflation in the order of 0.1 percentage points. Their actual contribution came in at some 0.3 percentage points. Here comes this excess contribution we did not plan for in October — 0.2 percentage points from sugar and sunflower oil. Grain contributed some 0.3 percentage points (overall contribution to annual inflation of prices for flour, bread, bakery products, pasta and grain in November — Ed.).

The Government’s measures, provided that they are fully implemented and their whole effect manifests itself before the end of December — which I think is unlikely though, and their effect will appear in January — would bring inflation lower by some 0.1 percentage points.

On the Government’s measures: my view is our priority should be economic policies. I think that administrative policies, which may include a price freeze or regulated prices, should only be resorted to once economic policies have been exhausted. I certainly see the emphasis on systemic measures, according to the Government — these are meant to establish a permanent tool to even out price volatility in certain product categories that are highly sensitive to external conditions. This tool would prevent drastic changes in global prices from immediately passing through to domestic prices.

This tool does not have to be the same as the one we have in place for petrol and oil products; it should only work to even out such fluctuations. This is central to preventing growth in inflation expectations driven by steep price rises in these product groups. These may have secondary effects with a potential impact on overall inflation.

We are therefore interested in having economic tools of this type.

QUESTION from Bloomberg:

Based on your previous response, my understanding is that the Central Bank supports the rollout of cap prices for sunflower oil and sugar. Is that really the case?

And my second question, please. What do you think are the chances of administrative constraints on other products, food and non-food products? Are they likely to be implemented in the near future?


I am not really in favour of administrative measures. I acknowledge that they can be viewed as a last resort, when market policies have been put into effect and no further impact is expected. In this particular case, such market tools should be established first, just as I have said. Yet, we are in a situation when administrative action is being taken first. More so, if this is a case of administrative measures, such measures should be short-term. They would bring about clear negative effects were they to become protracted, leading to a sustained and persistently growing demand and supply disbalance and discouraging producers from investing in certain products.

Administrative measures should have a very limited scope. What is a price? A price is essentially a key economic indicator that gives a signal to producers as to where the area of demand is, the focus of investment and business expansion. If this indicator is not operational, the whole market mechanism is not, either. This is why price regulation is only appropriate as a last-ditch measure.

QUESTION from Kommersant:

Is the Bank of Russia considering the view that expectations for import of inflation came as a meaningful component of the November inflation hike?

What is the Central Bank’s medium-term outlook for inflation in the EU and Asia?


We acknowledge that inflationary pressures have been low, both in the EU and Asia. In the EU, inflation remains lower that the ECB target, and the ECB’s current policy is aiming to raise the rate of inflation. Fairly low inflationary pressures are also reported across many Asian economies.

Imported inflation may certainly influence our domestic inflation if we import, for domestic consumption, some products in bulk, and if global prices for them have risen sharply. This is essentially the case of a number of export products with price rises. Imports, unlike exports, carry no such expressed implications for inflation.

QUESTION from Izvestia:

Is Rosstat holding consultations with the Bank of Russia as to an extension in the set of products for calculating the consumer price index? Perhaps the regulator, in cooperation with Rosstat, intends to make the set more aligned to real conditions? It might make sense, for instance, to exclude outdated services and include property and rental prices.


Indeed, we stay in constant contact with Rosstat; all the more so, as we are the statistical body for several reporting lines. Still, Rosstat is the methodology owner. This is indeed a problem, not only for us, but in other economies, too: these methodologies may fail to account for changes, ongoing or past.

We are currently seeing fairly rapid changes in consumption patterns. The idea of including property and rental prices in the calculation is under discussion globally. I think a detailed discussion of the matter is truly needed. I agree with the principle of periodic reviews and changes to the set of components as may be necessary. This would make the Rosstat index a more accurate assessment of price movements and price pressures. We are ready for this discussion.

QUESTION from Forbes:

The Finance Ministry issued OFZs (federal loan bonds) worth more than 5 trillion rubles in 2020, having delivered on its issue target in advance. These were all market loans, and no central bank assistance was requested. The bulk was purchased by national banks. Would you please reveal this secret to us: was the Finance Ministry or the Bank of Russia behind the idea of applying OFZ floaters to finance the budget deficit? Can you see any risks, including ruble exchange rate risks, in extensive use of floaters issued for banks, instead of OFZ bonds with a fixed coupon, which are of more interest to overseas investors?


I honestly cannot really recall whose idea it was. We had joint discussions about these tools; it looks like it was the Finance Ministry’s initiative given that it is in the Ministry’s mandate to decide on the most appropriate instruments depending on the situation.

What we really saw is that OFZ floaters are in great demand with major domestic banks, i.e. local investors, whereas fixed-coupon OFZs are of more interest to foreign investors. This is the case of different priorities. Our banks are showing more interest in floating-rate instruments, which enable them to manage the interest rate risk, among other things.

QUESTION from Rossiyskaya Gazeta:

Annual inflation has actually approached 5%, pushing average interest rates on deposits to zero levels at best. Apparently, depositors, who are not pleased about this, seem to have two options. Option one would be investing their deposit in a down payment under a concessional mortgage lending programme. Option two would be making a foray into the stock market.

Does this choice of the two options seem to pose risks of bubbles emerging in both the housing and stock market? Are there any plans the Bank of Russia might have to curb this huge inflow of household funds, given that this inflow has no signs of fading? If there are, which instruments would be involved?


First, let me comment on the level of deposit rates. Once we compare, let us say, the rates on household deposits which were in place a year ago and the rate of inflation we have, we will still come up with positive deposit rates. If I remember right, based on November data, the average interest rate for annual deposits last year was about 5.9%. This compares to 4.4% inflation in November. Accordingly, this is a positive rate of return. We also expect that it will remain like this in the coming year.

Deposit rates at the moment, if we take the maximum rate on deposits with the top ten banks, are within 4.4%, whereas the inflation forecast is 3.5–4%. Admittedly, households’ inflation expectations are somewhat higher. Yet, when we define deposit profitability as positive or negative, we should compare the deposit rates and the rates of inflation in the same periods.

It is true that consumers are increasingly focused on the stock market in search of higher returns; there has been a rise in demand for mortgage loans. You know our attitude towards the concessional mortgage programme: this programme should be rolled back in time so that it does not lead to the emergence of bubbles.

As regards the stock market, there are no bubbles here. From the financial sector’s viewpoint, there are no risks here, and we welcome this inflow or the active interest of retail investors. People should be able to use all the opportunities the financial market can offer, and they should diversify their investment.

Our concern is about the risk people may assume but cannot understand, as we have said on numerous occasions. Retail investor rights protection, when the retail investor enters into the market, cannot be underestimated. The current focus is imposing restrictions on several instruments for non-qualified investors and combatting misselling practices.

Focus should not only be turning to the volumes of funds citizens are investing in the stock market. The stock market and household investment are set to grow. However, every effort should be made to protect the rights of citizens operating in this market.

QUESTION from Realnoe Vremya, Kazan:

This question will take us back to the key rate. You say that your monetary policy stance is set to remain soft. What do you think is the efficiency of the policy measures enacted in the most acute pandemic period? What is your assessment of the outcomes? How would you identify conditions in which the economy, perhaps some regional economies, would be prepared for monetary tightening, i.e. a U-turn in monetary policy?


We think that loose monetary policy and key rate reductions carried positive implications in the acute period, having helped us moderate the scale of an economic downturn. At this moment, we have upgraded the GDP growth outlook for this year, showing that the downturn is set to be no more than 4%, perhaps even less.

What are the workings of loose monetary policy? Its workings manifest themselves through a softening in monetary conditions and support of consumer and corporate lending. We saw no contraction in lending in our very challenging environment; rather, it was on the rise. A meaningful rise was seen in lending to corporates, mortgage lending, and crucially, SME lending, which all worked to shore up the economy. In some instances, these policies enabled support for household and corporate incomes that may have simply disappeared as a result of restrictive measures; in other instances, these policies enabled companies to carry on with their expansion and investment programmes.

This certainly made a difference, along with the Government’s relief package and borrower support measures. Our efforts were very carefully coordinated, and the whole package of measures made a truly positive impact.

With the economy still on a recovery path, our policy is set to remain loose. Its tightening may only occur when the economy is ready, and we will be making such decisions based on the economic outlook and the outlook for inflation.

QUESTION from Mir Belogorya television and radio company, Belgorod

At the year end, inflation exceeded the Central Bank’s forecast. Which factors hadn’t you taken into account? Did that have implications for next year’s forecasts? What should happen and what should not happen for these forecasts to come true?


We have had several revisions to our forecast for inflation this year. The start to the year 2020 was without the pandemic. At the time, we forecast inflation at 3.5–4%. You will remember, the past year was a year of low inflation. Annual inflation stood at 3%. We therefore predicted fairly low inflation at 3.5–4%.

It was in October that we revised the forecast following the start of the pandemic, based on all the factors that materialised in the spring, when restrictive measures sent demand for consumer goods higher. We saw an uptick in inflation in the spring, which combined with a weakening of the ruble in the spring, summer and autumn. This led us to revise the year-end forecast and predict 3.9–4.2% inflation, up 0.3 percentage points. I have highlighted the drivers behind this.

These include developments in the markets for individual food products, the weakening of the ruble, and the secondary effects of inflation expectations. We were not able to provide for some of these factors, but we can see that their impact will most likely wane. It is very important that we understand whether these factors will have a longer effect and how they will combine with disinflationary factors stemming from persistently weak demand as the economy is still on the path to full recovery.

We expect that this combination of factors next year will bring about 3.5–4% inflation, and we will update the estimates as new data come in. What counts most is the focus of our policy on sustaining inflation close to the 4% target. We believe that relatively low, predictable and steady inflation is critical to both consumers and businesses.

QUESTION from RIA Novosti:

The Central Bank has announced the transfer of non-core assets from Otkritie to the non-core asset bank TRUST, including 9% of VTB shares. When is the VTB shares transaction due? Beyond VTB shares, what other assets are to be assigned to TRUST?


There are plans to complete the VTB shares transaction before the end of the year. We will make announcements as to other assets in due course.


The Central Bank has raised the subject of constraints on sales of structured financial products to ordinary investors. How long would this ban last, and what other measures may the Central Bank enact to protect non-qualified investors?


True, we are discussing these measures, and more so, we are enacting them. Under our recently issued recommendations, financial organisations should waive sales of structured financial products to non-qualifies investors who cannot understand and fully assess the risks these products carry. We are also working with lawmakers to expedite the passing of laws on the rules of sales of such products. Furthermore, we believe that several norms in the enacted law should be brought forward, including investor tests (opening access to some slightly more sophisticated products to investors).

Yet, before this framework becomes operational, we consider it necessary to impose a ban on sales of structured financial products to non-qualified investors. This ban should be enshrined in law. The ban should remain in force until the mechanisms of the core qualified/non-qualified investor law become operational and until the time we can see that it works and testing works, and that there is no misinformation and no misselling. Unfortunately, there are cases of misinformation we confirmed through our test purchases: this is when our employees visit a bank as ordinary citizens, and this could even be a bank where they have deposits, or not, to invest some money. Unfortunately, we have received reports on cases of consumer misinformation, when financial products are marketed as deposits and the confirmation is given that insurance covers the total amount in addition to the 1.4 m rubles. But in fact, it does not. These measures will need to remain in force until we have no cases like this and citizens are secured against such risks.

QUESTION from Interfax:

One of my questions follows on the subject of investor inflows to the financial market. Can you please specify when the Central Bank is planning for testing of non-qualified investors to start? Although under the initial plan this testing was to start in 2022 when the law becomes effective, the intention is to bring forward these dates. Please comment on this point, given the importance of this requirement for all market players including retail investors.

And another question on the same subject, please. Does the Central Bank view banks’ subordinated bonds as sophisticated products subject to restrictions until the law enters into force?

And another question about regulation and supervision.

What plans for 2021 does the Central Bank have for any regulatory innovations in bank supervision? What is there for banks to expect? Are you perhaps exploring some innovations that had to be postponed because of the pandemic? Are you perhaps working on some new ideas consistent with new conditions and new trends in the overall banking business in 2020?


Testing — the law stipulates testing to start on 1 April 2022. What is under discussion now is the proposal that the start date be brought forward to 1 October 2021, with a ban on sales of structured products imposed until then. We believe, if this date is still 1 April 2022, the ban would need to be extended.

My opinion is that subordinated bonds are not for non-qualified investors. Incidentally, we know of multiple court cases when individuals bought banks’ subordinated bonds not fully understanding what this product is.

Now on the subject of regulation and supervision, or rather, regulation. We intend to continue our work to further adjust regulation. Incidentally, our recent proposal, approved at the Board and filed for registration with the Ministry of Justice, is about adjustments to project finance regulation, among others, with the introduction of some project finance incentives with a pledge over shares, and another easing measure for SME. We nevertheless confirm our course of discouraging banks from M&A financing and encouraging them to finance operating companies, business expansion and operations.

With some other adjustments in regulation also possible, our general view is that the bulk of problems to be addressed through regulation have by now been solved. The focus here will be adjusting settings.

As for supervision, there are no plans for any drastic changes. We consider the system operational. We have made a lot of changes in business processes, in the setup of supervision procedures, and in responsibility for the supervision process. It is essential that these processes work well.

QUESTION from Izvestia:

More on the subject of the stock market. Multiple instruments are currently being marketed as those with minimally guaranteed yields, and many of them are long-term. May the ultimate outcome of this be millions of disappointed investors who have received zero yields? Are there any reputation risks here?


There are indeed risks related to instruments marketed to consumers with promises of a high yield or total security of investment — promises that are left unspecified. The consumer may well be disappointed to receive a lower yield. This is why we are so assertive with our agenda for protecting non-qualified investors.

We studied the profile of recent entrants to the stock market somewhat. Admittedly, these are chiefly wealthy citizens, and some 10% of these entrants accounted for 90% new inflow in terms of assets.

However, we can also see people of moderate means making forays into the stock market as they seek yields better than those available through bank deposits. These people are attracted with promises of higher yields. This is where we are confronted with reputation risks and general risks to consumers in the first place and to the overall financial sector. As long as strategic thinking in the financial sector is beyond short-term yields and long-term profitability, the ‘keep your customer pleased’ principle should be a strategic propriety in the banking business.

Our concern though is that short-term interests are likely to dominate in some instances, hence the need for regulatory action including legislative initiatives.

QUESTION from Chelyabinsky Obzor, Chelyabinsk:

I would like revisit the issue of sunflower oil and sugar, an issue in the spotlight. Prices are up. The President steps in — and the prices are no longer increasing. However, there are products, like spice cakes or sweats, that contain sunflower oil and sugar. Can we expect the effect of pent-up inflation shortly, because the manufacturers have purchased input goods as was required but now this stock is up, and accordingly, they will need to buy at new prices? Put simply, are we supposed to expect confectionery prices to grow soon, in a sign of pent-up inflation?


We have indeed mainly quantified the direct effect, which I have mentioned, that is, the contribution to inflation of a rise in prices for sunflower oil and sugar — this is about 0.3 percentage points; plus, grain and flour overall contributed at least 0.2 percentage points (the contribution to annual inflation of prices for flour, bread, bakery products, pasta and grain in November is estimated to total 0.3 percentage points — Ed.).

These calculations strip out secondary effects, whereas rising grain prices push higher prices for flour, bread, bakery, and pasta, and also drive up the cost of meat. Taken individually, the share of sunflower oil and sugar in the consumer basket is not that great — 0.9% including flour. But if we add bread, pasta, grain, it is another 2.5%, and even more if we add meat. Admittedly, there will be no 100% direct pass-through effect because other components are used in the production of these products. Ultimately, we assume that price growth is set to slow down for these products, with no growth (surplus growth) in prices for processed items.

QUESTION from Bloomberg:

I have two questions, please. One is about demographics. This is an area of study of the Central Bank, with growth forecasts being made and updated. It is common knowledge that Russian economic growth is held back by demographic constraints. Have you analysed this year’s higher mortality rate, and is this expected to slow economic growth? The press release terms labour shortages as an inflationary factor. What is the contribution of a higher mortality rate to the rise in labour shortages, and accordingly, to price growth?

The second question concerns banks. Although I know that you do not comment on such matters, your deputy chairman Sergey Shvetsov has publicly recommended that the Government sell its stocks in banks it owns. Can you please specify which banks these are — VTB, Sberbank, Russian Agricultural Bank? When are these banks to be sold? Did you perhaps send recommendations to the Government? We would be grateful if you could share some information with us.


Demographics is indeed a key factor impacting on long-term economic growth rates, and one to be reckoned with as a long-term factor. As for the pandemic effect, we have yet to account for it, and we will consider it incrementally. We have not yet measured its direct effects. Yet, in the context of labour shortages this is a somewhat different factor, for all its interconnection with demographics. The strongest pressures we can see come as a result of migration restrictions. This is a cost driver in some industries, including construction.

The problem of skills shortages does not only originate from migration. We realise there is a problem, and it surfaced before the pandemic, that is, the problem of supply and demand disproportions in the labour market. Businesspeople are now making mention of personnel shortages in several occupations.

On the subject of selling state-owned stock, although the Bank of Russia became a shareholder in a number of banks — a forced measure and a result of financial resolution programmes — we invariably adhere to the view that state shareholdings in the banking sector need to be scaled back.

We are in turn strongly committed to a course of exit from the capital of banks in which we are a shareholder. The sooner this happens the better. At the same time, the Government has considerable stocks. There were no specific recommendations from us, but in general, we know the Government also adheres to the policy of strategically reducing the share of state in the banking sector. I should admit that the subject of state shareholdings may be linked to the state’s role in the context of a level playing ground, with banks participating in multiple state-sponsored programmes and receiving budget funds or state-owned companies’ funds. This is where the level playing ground approach should secure equal opportunities for all banks, not just national banks or major banks. In my opinion, the issue of competition extends beyond the problem of prevailing state shareholdings in the banking system to the issue of several dominant players. This is the problem of disproportions in the banking sector, disproportions between its market players.


The Bank of Russia has today announced that macroprudential measures related to mortgage loans may be tightened if property prices grow persistently at accelerated rates, or if lending standards deteriorate. For this tightening of mortgage-related macroprudential policies to occur, how long should this accelerated growth in property prices last?


The need for tighter macroprudential policies related to mortgage loans is based not so much on how protracted a period of increasing property prices is, how many months it lasts, but rather on which risks this creates given current debt burdens of households and banks’ lending standards in place. We currently report a slight deterioration in the standards from the viewpoint of loans with low deposit mortgages. We intend to monitor the developments here. Should all the factors combined lead us to believe that financial stability risks are emerging, we will be prepared to tighten macroprudential regulation to stem these risks.

QUESTION from Kommersant:

Which additional research into the inflation structure may the Bank of Russia have requested from its analytical departments in connection with year-end uncertainty?


We try to analyse inflation across several dimensions. It is true that in making decisions on the key rate we look into various indicators and their change, which are annualised indicators stripping out volatile components — those with a stronger dependence on the exchange rate, food, non-food and services. We continue to take various parameters into account, and departments are proactive in providing analysis across several dimensions to enable a more accurate assessment of current developments.

Certainly, a key challenge on hand is the need to understand how the recent rise in inflation, which has apparently occurred on the back of temporary factors (inflation triggers were temporary), may combine with growing inflation expectations (whose growth was also driven by transient factors) to transform into more sustainable and longer-term inflation drivers. This is the focus of study for our analytical departments. More data are needed here though and just more time, rather than analytical studies, to see the ultimate manifestations of these effects if any.

QUESTION from RBC newspaper:

According to forecasts, in three years from the launch of a digital ruble, as much as 2–4 trillion rubles may flow out of banks to become the new form of money. Would you agree with this estimate? Which amount of funds do you think individuals and legal entities would make digital? Would this entail a liquidity deficit and a rise in lending rates? Would the Bank of Russia introduce any special measures to support the banking sector at a time of money redistribution?


The digital ruble consultation paper is under discussion, and banks’ views came as no surprise to us. It is clear we are faced with change, and change is not something that everybody likes. As regards your questions, banks are currently operating with a structural liquidity surplus, which is not expected to give way for a structural liquidity deficit for a span of several years. Should the decision to launch a digital ruble be made, this launch would be a very gradual process. It would take time people and businesses to get accustomed to this, yet this would carry no implications for lending rates anyway, and so they will remain the same with or without a digital ruble. They will evolve contingent on inflation changes and our monetary policy. I do not really know what is behind the estimates you mention.

These estimates seem groundless. We expect no inflows or changes of any importance [in the wake of the launch of a digital ruble]. People will be get used to a digital ruble, and demand for it would likely have positive implications. The need for any special measures appears unlikely. Our whole toolset is established. We have the right instruments to use should for any new reason banks have to deal with the emergence of a liquidity deficit even the overall system has a surplus. Now, we have the interbank market where liquidity redistributions occur. Having said this, our intention is to carry on with discussions of this subject. This problem formulation we hear suggests a total misunderstanding of how monetary policy, operating mechanisms and procedures work. This is probably the area where more efforts are needed on our part to explain the workings of monetary policy and its very mechanism. It is clear that the above-mentioned conclusions cannot follow from our proposals.

QUESTION from Krasnyi Sever newspaper, Vologda:

The Central Bank declares annual inflation to be in the region of 4%. But ordinary citizens may struggle to understand this number as overall food prices are going up (this is what the President said), as are prices for medicine (prices for some have risen twofold), housing prices (the nation average of 16%), prices for cars, and others. Are there plans to revise this estimate, and what are next year’s targets?


It is true to say that inflation has accelerated this year. We upgraded the forecasts. However, we remain committed to the 4% target and stand ready to take action to put inflation back on the 4% path. I certainly agree that people are feeling some food products are becoming more expensive — everyday food products like sugar, oil and flour. You also mention rising housing prices. Headline inflation, which is statistically estimated at 4.6% per annum, is in fact a reflection of prices for a very wide range of goods and services — more than 500 goods and services. True, we are overly sensitive to very acute price growth, especially when products we consume on a daily basis become costlier.

Rosstat calculations are nevertheless based on a wide range of goods and services. This may be difficult to believe, but prices for some products have shown very slow growth paces of under 2%, or none whatsoever. In annual terms, these are prices for poultry, pork, coffee, and white fish. This list is not exclusive. Prices for some items even showed a decline: millet, cabbage, and bananas. The year was also special in the way that although headline inflation was up (about 3% a year ago relative to 4.65% now), the range of variation within this average indicator grew wider. For all fairly low inflation last year and unevenly growing prices, the range of variation was not that wide. This variation is indeed extensive, which triggers change in inflation expectations, so we see they are up. This does not, in our opinion, necessitate a target review. The targets for low inflation are absolutely well-founded. They rather signal the need for action, and the Government is taking action, while we should focus our efforts on monetary policy adjustments as we seek to secure inflation at 4%.

This was the last question. Thank you very much.

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