GDP may decline 5.7% under stress scenario with oil at $40 - monetary policy report
MOSCOW. June 16 (Interfax) - Russian GDP could contract 5.7% in 2015 if the stress scenario comes to pass with the price of Urals crude oil dropping to $40 per barrel, and staying their until 2018, the Central Bank said in the monetary policy report published on its website on Monday.
"That said, oil prices holding at a low level for an extended period may lead to a reduction in economic potential. In that case, negative GDP growth rates could be seen in 2016-2017 against a backdrop of continuing high inflation," the report says.
In that case, in order to bring inflation down to the level of the medium-term target, Central Bank will be forced to pursue a tighter monetary policy, but taking into account the anticipated economic slump. According to the forecast, given this turn of events inflation will slow to 8-9% by the end of 2016 and slow to a level that is close to the medium-term target of 4% only by the end of 2017.
A substantial drop in domestic demand in the case of the stress scenario would lead to imports decreasing more than exports and, consequently, an increase in the current account surplus in 2016-2018.
However, compared to the baseline scenario, net private capital outflows would increase. The stabilization of oil prices at a low level would have an impact on the long-term reconsideration of the Russian economy's investment appeal by nonresidents and a further decrease in foreign investment.
If this scenario comes to pass, the Central Bank believes it possible to renew instruments that provide forex liquidity for a longer duration and if necessary it is prepared to sell forex in order to maintain financial stability.
