Statement by the Board of Directors:
The dynamics of the key macroeconomic indicators suggests that the pace of economic growth remains low. Production activity and investment demand remain subdued while producer confidence indicators have not been improving. Consumer demand supported by the real wage and retail lending growth remains a major driver of economic growth. According to the Bank of Russia estimates, gross output remains slightly below its potential. Meanwhile, the unemployment rate stays at a relatively low level.
In November and in early December, annual CPI inflation increased and as of 9 December 2013 was estimated at 6.5%, which exceeded the upper bound of the target range for the current year. The acceleration of inflation was mainly attributed to rise in prices of fruits and vegetables, which was unusual for this season, and of some animal products. In November the core inflation annual rate amounted to 5.6%. The absence of significant demand-side inflationary pressure in the context of gross output staying slightly below its potential is one of factors constraining rise in non-food prices in recent months. According to the Bank of Russia estimates, the factors affecting acceleration of price growth have short-term effect.
The Bank of Russia forecasts that inflation will resume the declining trend in the first half of 2014 and achieve the target in the second half of the year. The expected sluggish recovery of external demand and the subdued investment activity will constrain inflation dynamics. Nevertheless, the observed increase in inflation may affect economic agents’ expectations and, thus, poses inflation risks. Therefore, the downward trend in inflation expectations needs to be formed to ensure a way of achieving an inflation target in the medium term.
The Bank of Russia will continue to monitor the inflation risks and the downside risks to economic growth. The Bank of Russia will take into account the inflation targets and the inflation forecast, as well as economic growth prospects when making monetary policy decisions.