Elvira Nabiullina: Review of recent inflation developments in Russia and economic outlook Statement by Ms Elvira Nabiullina, Governor of the Bank of Russia, in the follow-up to the Board of Directors meeting, Moscow, 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.

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.