By Andrei Skvarsky.
Russian investment bank Renaissance Capital expects Russia to end 2024 with 2.7 per cent year-on-year economic growth, 5.7 per cent annual inflation and a relatively stable rouble, the institution’s chief economist has said.
The rouble, which stands at around 90 to the U.S. dollar today, is likely to edge down to about 93 in the second half of 2024 and on to 96.50 in 2025 because of “sustained domestic demand for foreign assets and consequent capital outflow”, Oleg Kuzmin told a news briefing in Moscow last week.
Last year’s unforeseen 3.6 per cent increase in Russia’s gross domestic product and relatively stable inflation with an annual rate of 7.4 per cent were the work of two “non-standard” factors, Kuzmin said.
One was a surge in domestic demand “supported by a combination of purchases postponed from 2022” and spending “effectively borrowed from future periods”, he said.
The other was a “sustained fiscal impulse funded by increased use of natural resource rents and by a practice of investing National Wealth Fund assets”. The National Wealth Fund (FNB) is the sovereign reserve fund.
RenCap expects demand to taper off soon, and this explains the bank’s more modest GDP and inflation projections for 2024.
Yet Renaissance does not rule out the possibility of demand persisting on its current scale and continuing to fuel inflation. If this happened, the central bank would put off an interest rate-cutting policy that RenCap expects it to launch in the fourth quarter of 2024.
The regulator is likely to embark on this policy in 2025 in that case, Renaissance believes.
One potential long-term mechanism to combat inflation in Russia is its “deeper integration with Asia, primarily China, a country that has been and will remain the main global region of reduced inflationary pressure”, Kuzmin said in reference to Moscow opting a while ago to focus on economic relations with Asian countries in reacting to Western sanctions against Russia.
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