Russian President Vladimir Putin listens to Minister of Construction, Housing and Utilities Vladimir Yakushev during a meeting in Moscow, Russia February 10, 2020.
Alexey Nikolsky | Sputnik | Kremlin via Reuters
The country’s Finance Minister Anton Siluanov said on Thursday that there are signs that Russia’s economy is currently warming with 5.9% annual inflation.
“If we continue with increased spending, what will we get? Overheating. The elements of overheating are already visible – high inflation,” Siluanov said at the St. Petersburg International Economic Forum, according to a Reuters translation.
Consumer price inflation picked up again in May, from 5.5% in April. Earlier this week the governor of Russia’s Central Bank, Elvira Nabiullina, told CNBC that “inflation is accelerating” and that unlike elsewhere, inflation was not seen as a temporary issue as economies reopen and consumers Demand increased.
“In our case, it’s different,” Nabiullina told CNBC’s Hadley Gamble before SPIEF earlier this week. “We think the inflationary pressure in Russia is temporary, not temporary. We see a more frequent factor, the monetary factor, so we started raising rates on a neutral stance.”
Investors are looking forward to the next meeting of the central bank on June 11 to see what it does next, with speculation that the bank may hike interest rates by up to 50 basis points from the current level of 5%. The inflation target of the central bank is 4%.
Nabiullina said the central bank would analyze all factors, including inflation forecasts and the state of the economy, but added that “we see risks as our inflation expectations rise, and they remain high for several months.”
On Wednesday, Russia’s central bank issued a bulletin in which it noted that the economy was growing in the second quarter and that GDP could reach its pre-pandemic levels in mid-2021.
However, analysts at the bank said that “economic growth is still uneven. Industries focused on export and intermediate products as well as the services sector have been recovering at a faster pace during recent months.”
It added that uncertainty remains high with respect to the medium and long-term consequences of the coronavirus pandemic.
Russia’s economy has been operating under international sanctions since 2014, following the annexation of Crimea.
Its role in the pro-Russian insurgency in eastern Ukraine, the 2016 US election interference, a nerve agent poisoning in the UK and its role in the SolarWinds cyberattack among other incidents, have all prompted further sanctions. For its part, Russia denies any involvement or wrongdoing.
The Russian economy shrank about 3% in 2020 as the pandemic took hold, marking the worst contraction in 11 years. This was due to public health measures in response to the COVID crisis and a drop in energy demand (Russia is one of the world’s largest oil exporters).
Russia’s central bank now believes that GDP growth for 2021 will be between 3-4%, but Nabiullina said, “a lot of course depends on the situation … This recovery is uneven.”
The governor of the country’s central bank told CNBC that US sanctions were a “persistent risk” to the country. However, she also said that Moscow’s reserves were “large enough, to withstand all financial scenarios or geopolitical scenarios,” and are probably more diverse than reserves of other countries.
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