The Bank of Russia recalculated macro scenarios after increasing the key rate

The new version of the Bank of Russia’s medium-term macro-scenarios in the Monetary Policy Guidelines (MPD) reflects the expected impact of a prolonged increase in the key rate in 2024–2025 on the Russian economy. The Central Bank assumes that with a high rate level, household consumption will noticeably decline next year, the current account forecast has been improved, which should at least prevent the ruble from devaluing, and the accumulation of reserves will become noticeable in 2024.

Latest version project The “Main Directions of the Unified Monetary Policy” of the Central Bank for 2024–2026 is dated September 28, the “cut-off date” of statistical information in them is September 14; The document was published on Thursday. The previous version of the “Main Directions”, a document from the Bank of Russia supplementing the budget macro forecast of the Ministry of Economy and “Main directions tax and customs tariff policy”, dated August 11. In the September document, the Central Bank adjusted the calculations for the basic, “fragmentation” (assuming a moderate decline in the global economy with some decline in oil prices and a faster disintegration of world trade into political blocs than seen now) and “risk” (almost global stagnation, two years recessions in the US and EU with a sharp decline in global energy prices) macro-scenarios.

Between the two versions of the document, the Central Bank in two steps increased the key rate from 8.5% to 13%, without excluding a further increase – the difference between the figures from August 11 and September 28 makes it possible to reconstruct the Central Bank’s view of how in the current conditions with further tightening Monetary policy and with the current trends in fiscal policy, macrodynamics will change.

The September draft also contains all the changes to the budget policy approved by the Ministry of Finance and the government in the latest version of the budget.

The “basic” version of the Bank of Russia’s forecast apparently reflects the Central Bank’s main hope during a sharp tightening of monetary policy in August-September: the consumer boom of 2023 will stop in 2024, and the current account, on which the ruble exchange rate now mainly depends, will forecast horizon is better than the 2020 indicators – in the August version they are always worse. This is mainly a consequence of lower import forecasts and a significant improvement in estimates of the future trade balance (however, due to the increase in expected oil prices by $5 per barrel in 2023–2024, export forecasts have also been improved). As part of the announced budget policy and monetary policy in 2024–2026, the accumulation of reserves by the state is expected to be more active: in 2024 it is $15 billion (in the previous version – $2 billion).

The consumer boom in the Central Bank’s model is slowed down not so much by an increase in the propensity to save, but by a reduction in credit – by about 1 percentage point (pp) for all indicators in 2023–2024. The dynamics of household consumption expenditures for 2024 changed sign: before the key rate increase, growth was expected to reach 2%, after – a decrease of 0.5–1.5%.

The GDP growth ceiling for 2024 in the latest version of the scenario has been reduced from 2.5% to 1.5%. The two problematic (and unlikely) alternative scenarios were adjusted similarly, although for the “risky” scenario the estimates of the GDP decline for 2024–2025 were increased by 0.5 percentage points.

Since further actions of the Central Bank, based on the experience of September, depend on the real, and not the predicted, rate of “warming up” of demand, one can roughly assume further assessments by the Bank of Russia of the consequences of new rate increases if the dynamics of inflation and demand are higher than the regulator’s expectations – within a few percentage points points, the Central Bank may consider a further increase in the key rate safe for both growth and financial stability.

Dmitry Butrin