altered projections of policy revision by key central banks are associated with downgraded next year growth forecasts for major economies. also, the current standstill in trade disputes may merely prove a temporary truce. these risks are quite tangible for emerging market economies. second, we have here the oil glut risk in 2019. this is partially associated with a downward revision of the global demand outlook. however, the main reason is an aggressive expansion of oil production in the us. in early december, opec and other oil exporters agreed to cut production in 2019. however, the developments of this year demonstrate that producers can rapidly ramp up shale oil production when prices are high. another considerable external factor is geopolitical risks affecting both russia and other 1 / 3 bis central bankers'speeches countries and regions. as far as internal factors are concerned, here we have persistent uncertainty over the price response to the vat rate hike, the effect of this year ’ s weakening in the ruble on inflation, and its effect on inflation expectations. it means that the uncertainty over price movements is associated with both an estimated direct effect of proinflationary factors and the scale of secondary effects dependent on inflation expectations. thus, our baseline scenario assumes that the vat rise will contribute approx. 1 pp to inflation. however, the possible estimates of this contribution range between 0. 6 and 1. 5 pp. the scale of secondary effects is still harder to estimate. even a temporary acceleration of price growth raises inflation expectations of both households and businesses. we saw it from the surge in petrol prices registered in may - june this year. petrol prices have been stable in the second half of the year. however, surveys suggest that russians are highly concerned about the rise in petrol prices. inflation expectations remain unanchored. this means that they are highly likely to go up in response to price growth following the vat rate hike. therefore, we cannot consider the vat rate revision as a purely one - off factor. elevated inflation expectations may change consumer behaviour and reduce the propensity to save. in these circumstances, firms will have an opportunity to raise retail prices even when the effect of one - off factors is exhausted. if this spiral is set off, inflationary pressure will rise and inflation may hold above the 4 % target for a long period of time. this will require a considerable and enduring monetary policy tightening. the task is to reduce as much as possible the risks of this scenario materialising. in addition, full

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, 14 december 2018. * * * today the bank of russia board of directors has decided to raise the key rate by 0. 25 pp to 7. 75 % p. a. this move is aimed at limiting the scale of inflation risks in the coming year. i will subsequently elaborate on the rationale of this decision. the second decision made today was to resume regular fiscal rule - based foreign currency purchases from 15 january. as we said earlier, the postponed purchases will be made gradually in the course of several years. we will decide on the fiscal rule - based foreign currency purchases postponed in 2018 in due course, after regular purchases are resumed. we have factored in this decision in our forecast. let me now proceed to give you the details of the key rate decision. today ’ s board meeting took an in - depth look at the reasoning for both keeping the key rate unchanged and revising it upwards. the main argument in favour of an unchanged key rate is the performance of the domestic demand. it is expanding moderately without posing any inflation risks. this primarily concerns consumption. in october, annual growth of retail sales came in at 1. 9 %. the heads of bank of russia regional branches, who contribute to the key rate decision, have also pointed to low demand and mixed consumption dynamics across regions. annual wage growth has also slowed considerably after peaking early in the year. the savings rate has been recovering in the recent months after a considerable drop in the second and third quarters. household deposits resumed growth driven by interest rates attractive for depositors. in this context, strong growth in retail lending underpins consumer demand without posing inflation risks. the evolution of the household behaviour model meets our expectations. however, more arguments call for a key rate hike. what are these arguments? they are associated with both external and domestic factors. external factors include, first, the state of the global economy as a whole and the situation in emerging markets. certainly, global financial markets have been less volatile this quarter than they were in august and september. this is partially attributed to the revision of monetary policy projections by major central banks. the next year normalisation may prove slower than expected, thus mitigating the risk of capital outflow from emerging markets. however, it is important that the