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Growth Expectations Keep Russia’s Interest Rates Unchanged

Russia’s central bank will keep interest rates unchanged at 10 percent, thanks to the forecast of stable economic growth. Although slow, the growth projected warrants the decision, as inflation prospects fit in the lower end of the bank’s outlook for 2017 at 5.5 percent, the latter according to central bank governor Elvira Nabiullina.

According to a statement from the institution, developments in Russia and abroad suggest that in view of slowing down inflation, interest rates are best left at there current levels. The bank also added that industrial production and non-oil and gas exports will grow this year – another indication that, like other producers that rely heavily on income from oil and gas, Russia is focusing on diversification to compensate for losses already incurred when crude slumped from US$140 to less than half that.

Russia has been hard hit by the oil price crash, but thanks to government support for the oil industry and the increase of market share in the East, it has managed to weather the worst effects of the crisis, with the budget deficit last year standing at 3.7 percent of GDP, and the figure for this year expected at 3.2 percent. The IMF also said that Russia’s economy might start to recover this year.

Sanctions, however, are still in place and are unlikely to go away anytime soon, despite media speculation that President Trump will remove them the first chance that he gets. Reports of escalating violence in Ukraine this week have made Washington especially wary, with the U.S. envoy to the UN saying that sanctions will remain in place until it returns Crimea to Ukraine.

In this context, it’s understandable why Russia has been cautious in its budget stipulations for this year, setting as a base scenario an average oil price of US$40 a barrel. If, however, prices average US$50 a barrel, the additional oil and gas revenues that the budget will receive could reach US$16 billion this year.

By Irina Slav for Oilprice.com

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