Moody’s: Russian inflation to peak at 17%-18% in Q2 2015, drop below 10% by mid-2016

MOSCOW. April 15 (Interfax) – Moody’s Investors Service expects Russian inflation to peak at 17%-18% in the second quarter of 2015 and to drop below 10% by mid-2016 as the impact of the ruble’s depreciation fades, Moody’s said in a report on Russia’s banking sector in 2015.

“Therefore Central Bank of Russia (CBR) is likely to loosen monetary policy on a forward-looking basis in 2015; but its key policy rate (1-week repo) will likely remain in double-digits,” Moody’s said.

Russia’s current-account balance remains volatile. Import substitution policies and slowing demand are unlikely to fully offset the impact of low oil prices in 2015, likely putting further downward pressure on the foreign exchange reserves, the report said.

Moody’s expects a GDP contraction in the 5%-6% range in 2015 due to the impact of significantly lower oil prices (Moody’s forecast for oil prices is $55 in 2015) and the large depreciation of the ruble. The medium-term outlook for the economy will be impaired by weak investment and the poor business climate, exacerbated by international sanctions.

The federal budget deficit may total about 2.7 trillion rubles (3.7% of GDP) and will be financed by drawing on the Reserve Fund, Moody’s said.