The growth slowdown that began in 2011, reflecting structural constraints, continued in 2013 despite accommodative policies. Real GDP growth slowed to 1.3 percent due to a contraction in investment while consumption remained robust owing to strong real wage growth and an unsecured consumer credit boom. The general government balance moved from a modest surplus in 2012 to a deficit of slightly more than 1 percent of GDP in 2013.
More recently, geopolitical tensions have brought the Russian economy to a standstill. Staff projects real GDP growth at 0.2 percent in 2014 with considerable downside risks. Concerns about sanctions so far, as well as the threat of additional sanctions in the future, following
Fiscal policy is being tightened. However, the non-oil deficit will remain high, highlighting
The CBR raised policy rates by 1dzdz percentage points in early March and a further dzdz percentage point in April and reduced exchange rate flexibility in response to the onset of geopolitical tensions. The CBR also increased to
The banking system remains broadly stable amid a gradual slowdown of unsecured retail credit growth and a stepping-up of bank oversight. Non-performing loans ratio has remained relatively constant. Capital adequacy ratio has been stable and remains above the statutory minimum. The banking system has moved from a negative to a positive net foreign asset position, limiting aggregate currency mismatch.
Executive Board Assessment2
Executive Directors noted that despite accommodative policies, the Russian economy continues to experience a slowdown, reflecting mainly structural factors. Directors agreed that, with the economy operating close to its full potential,
Directors observed that the geopolitical tensions are having strong negative consequences for the Russian economy. The related sanctions and the possibility of their escalation have had an impact through capital outflows, exchange rate pressures, and limited access to external financing with higher borrowing costs, and are also raising the uncertainty of doing business in
Directors concurred that the fiscal stance in 2014 is broadly appropriate but noted that flexibility could be considered in the event of a more severe cyclical downturn. They emphasized that adhering to the fiscal rule should support its credibility and the needed medium-term fiscal consolidation to rebuild buffers and safeguard intergenerational equity. Directors welcomed the changes to the public pension system but stressed that additional measures, such as increasing the mandatory retirement age, would be necessary to ensure long-term viability of the system. They highlighted that resisting spending pressures and increasing efficiency gains would help create space for infrastructure investment.
Directors agreed that a tighter monetary policy stance is required to achieve the 2015 inflation target and anchor expectations. They also welcomed the authorities' commitment to continue moving to an inflation targeting regime and to a fully-flexible exchange rate once the current uncertainty subsides. In this context, they took note of the recent measures taken to increase exchange rate flexibility.
Directors noted that the banking system remains generally stable and welcomed the regulatory steps taken to slow the growth of unsecured retail lending. They concurred that the
Directors considered that deeper structural reforms are critical to enhancing
View table here (http://www.imf.org/external/np/sec/pr/2014/pr14322.htm)
TNS 30BautistaJude 140702-4785308 30BautistaJude
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