The CBR plans to publish the anticipated long-term trajectory of its key rate

RUSSIA ECONOMICS - In Brief 10 Sep 2020 by Alexander Kudrin

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Today CBR published the draft of the “Key directions of the monetary policy in 2021-23”. In addition to updating macroeconomic projections and introducing various scenarios of the development of the Russian economy, the regulator indicated that it is almost ready to start forecasting and publishing its key rate trajectory. The exact format is not set yet, but the CBR plans to decide by year-end. It is not unusual that regulators in some other countries provide forward-looking guidance to the markets. In theory, such information may help markets understand better the way of thinking of the members of the Board of the Central banks, and help investors to forecast long-term macro trends.Meanwhile, the ability of the Russian Central Bank to provide reliable forecasts of the macroeconomic indicators remains questionable. For example, in the aforementioned draft, the regulator still expects in the base case scenario the current account surplus to stay at $1 bln in 2020, while in 8M it reached $23.3bn (this estimate was also published today). It is hard to expect that the current account surplus may turn strongly negative in the remaining four months of the year and reaches minus $22.3bn in September to December, especially on the back of the weakened ruble. The weaker ruble will curtail imports and keep the trade surplus strongly positive (trade surplus reached $57.3bn in 8m20). Some more puzzles can be found in the other parts of the CBR forecast. Also, it’s worth reminding that at the beginning of 2019, the CBR predicted a very significant acceleration of the CPI due to increased VAT and currency weakness. Monetary policy was adjusted accordingly correspondingly as the CBR...