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In view of the current price movements and the oil market outlook, Russia’s central bank is keeping its oil price forecast for this year at US$50 per barrel, and still believes that the price of oil will drop to roughly US$40 in 2018-2019, Bank of Russia Governor Elvira Nabiullina said in a statement on Friday, after the bank cut the key interest rate to 9 percent annually.
Although the pace of economic recovery has somewhat exceeded the Bank of Russia’s expectations, medium-term inflation risks remain in place, governor Nabiullina said.
In the medium-term, “The external economic situation will likely remain unstable, as confirmed by the volatility of oil prices. We do not rule out that [oil] production in the US will grow and other countries, which are not parties to the agreement, will expand their supplies to the global market. Demand-side risks are also in place. They result from a likely slowdown in the Chinese economy, as well as the development of energy-efficient technologies and alternative energy sources,” the governor noted.
“We still assume that the oil price will draw back to roughly $40 a barrel in 2018-2019. We do not expect it to considerably affect economic growth given that the economy has already largely adjusted to low oil prices,” Nabiullina said.
Russia has adapted to the lower-for-longer oil prices, and this year Russia’s budget is reaching its highest level of resistance to oil price swings in the past nine years, Russian Finance Minister Anton Siluanov said in Parliament last week.
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A week before that, Russia’s Economy Minister Maxim Oreshkin said that the current underlying key assumption of Russia’s economic policies—oil prices at US$40—can allow it to live forever at that price or below.
“We are actually ready to live forever at oil prices $40 or below,” Oreshkin said.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.