Elvira Nabiullina: Bank of Russia’s 2020 Annual Report Speech by Ms Elvira Nabiullina, Governor of the Bank of Russia, at the State Duma’s plenary session on Bank of Russia’s 2020 Annual Report, Moscow, 15 June 2021. * * * Good afternoon, Mr Volodin. Good afternoon, esteemed deputies. Today, I present the Bank of Russia’s Annual Report for 2020. First of all, I would like to thank the deputies for the detailed review of our report at the meetings of the working groups, parliamentary parties, and State Duma committees. You really performed a significant amount of work despite your schedule of the spring session being very tight. Taking this into account, I will therefore do my best to shorten this speech. Nonetheless, I would like to focus on key topics. Last year was abnormal, and we will remember it for a long time. The pandemic entailed huge losses, and many families lost their loved ones. As we needed to protect people’s lives, we had to impose serious restrictions, and they inevitably affected the economy. Our main task last year was to mitigate the aftermath of the pandemic for households and businesses. I would like to emphasise that the financial system, the financial sector, helped us overcome the consequences of the pandemic. There are two main reasons why the financial system was able to help all other sectors of the economy, rather than itself needing financial aid, as before. First, we started 2020 with relatively low inflation, specifically 3% as of the beginning of the year.

[2] Second, there has been a significant fall in the number of immigrant or foreign-born workers in the advanced economies, particularly among lower-wage occupations. [3] Third, preferences for work relative to non-work activities may have shifted during the pandemic. Recent US data show a persistent decline in desired hours worked especially among better-educated workers. [4] It remains to be seen whether these labour supply shifts are irreversible. Ultimately, so long as labour shortages continue, prices will edge higher compounding the pressure on central banks to hike further later this year. The second uncertainty is posed by China’s re-opening: a stronger-than-expected infrastructure-led rebound in China could pose an upward risk to global inflation. While we can anticipate an uptick in demand from China’s reopening, the extent to which this imparts a renewed impulse to global inflation is unclear. For now, China’s near-term developments appear unlikely to decisively reverse the global disinflation trend in 2023. The recovery of China’s consumer demand is expected to be led by domestically oriented consumer services rather than tradable goods. Unlike in advanced economies, China has a substantial supply of deployable labour suggesting that significant labour market tightening is unlikely. Producer prices in China are continuing to decline. The easing of pandemic-related supply chain disruptions will help moderate producer price pressures, imparting a mildly disinflationary impact on the global economy. However, a sharp rebound in economic activity in China on the back of robust infrastructure spending and an accelerated recovery of the property market could lead to higher global commodity prices.