Russia: The case for a go-stop-go monetary policy Russia: The case for a go-stop-go monetary policy Russia: The case for a go-stop-go monetary policy

Russia: The case for a go-stop-go monetary policy

Christopher Dembik

Head of Macroeconomic Research

Summary:  Given the outcome of the latest CBR meeting, a new rate cut seems quite unlikely in the short-term to support the recovery. The tone was not really dovish, with clear mention that inflation is higher than the expected trajectory and that short-term inflationary risks remain prevalent. However, we think that the option of further monetary stimulus could get back quickly on the table early next year if downside risks to the economy materialize, as we expect. We believe that the CBR will basically adopt a go-stop-go monetary policy consisting in alternating between fighting high inflation and supporting the economy.

To understand the exact extend of the crisis on the Russian economy, we need to look at the evolution of the manufacturing PMI. It is the first time ever the manufacturing sector has experienced such a prolonged phase of contraction, already reaching 14 months in a row, thus surpassing the previous record of the 2008-2009 crisis which lasted about 13 months. As it is the case almost anywhere else, the Russian economy is following a K-shaped recovery, with the recovery occurring at different magnitude across regions and sectors. The latest statistics indicate that the industrial production remains still very depressed, mostly as a result of poor performance from extractive industries (commodity-based companies) that are at the core of the Russian economy, while the manufacturing sector is slowly getting out of the woods compared to the situation in Q2.

The RUB weakness has been a major driver of the recovery, with little negative implications in terms of inflation evolution. The weak currency is supporting the increase in oil and gas budget revenues that are expected to be above the basic level implied by the budget rule presented this summer, according to the Ministry of Finance. In contrast with what has happened in the past, a falling exchange rate does not translate much into higher inflation. Based on the CBR report, a 10% RUB decrease results in less than 1% of inflation – which is much lower than in most EM countries. It does not mean that the weak RUB is not an issue for the economy anymore but if we need to assess the pros and the cons it is bright clear that this trend is mostly positive for the economy.

Another factor of support to the economy has been the strong rise in international reserves, which can serve as cushion in period of crisis like the one we are going through. Contrary to many other EM countries, the CBR has managed to diversify its exposure and reduce its reliance on U.S. assets (U.S. dollar and T-bonds) before the outbreak. As such, around two third of Russian international reserves are in gold, euro, and yuan. On the back of the strong performance of gold in the lockdown period, international reserves have reached one of their highest levels on record in July.

Finally, the reduced GDP exposure to the services sector, which has been hit the hardest by the great lockdown, has been another factor of support to the economy. The size of the services sector in Russia is far to be close to that in high-income countries, which has automatically mitigated the amplitude of the recession.

At the other end of the spectrum, we see many risks in sight at the national and international levels that could jeopardize the recovery and transform the K-shaped recovery into a L-shaped recovery. The pandemic has accentuated pre-COVID structural trends, especially population loss and business concentration. Based on the available statistics for 2020 (that cover only the first seven months of the year), the country is doomed to go through its largest population decline since 2006. In addition, it is likely the pandemic will ultimately increase economic dependence on the extractive sector as the share of the services sector will probably decrease in the short- and medium-term as a consequence of rising bankruptcies.

In this context of structural changes and looming risks, we doubt that the CBR will be able to postpone longer a new rate cut. At its latest monetary policy meeting, the CBR left its key rate unchanged at 4.25% and closed the door for the moment to another rate cut due to the emergence of inflationary pressures – the latest inflation statistics are consistent with an annual 4% inflation target. However, we think that the option of further monetary stimulus could get back quickly on the table early next year as patchy aggregate demand and higher unemployment will become the focal points of interest again. In these circumstances, we believe that the CBR will basically adopt from next year a go-stop-go monetary policy consisting in alternating between fighting high inflation and supporting the economy.


Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (
- Analysis Disclaimer (
- Notification on Non-Independent Investment Research (

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.