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IKAR in Mass Media

Central Bank of Russia says future 2025 harvest a potential pro-inflationary factor

28 декабря 2024 года

MOSCOW. Dec 28 (Interfax) - Russia's 2025 harvest is a potential additional pro-inflationary factor, going by an assessment of winter crops sown, the Central Bank said in a summary of the key rate discussion at its December board meeting.

"Winter crops were sown on a smaller area compared to last year, and less than planned due to adverse weather conditions in the autumn of 2024. Also, assessments of the state of crops are not as good as in recent years. This could turn into an additional pro-inflationary factor," the regulator said.

Some grain market experts say the 2025 harvest will depend on the weather in winter and spring, and on the situation in the fields, where winter crops either did not shoot or went into winter in a weakened state may improve. Thus, the baseline forecast of the Institute for Agricultural Market Studies (IKAR) for the wheat harvest is 84 million tonnes, but if the weather is not good, the harvest may be lower than 80 million tonnes. The SovEcon company estimates the wheat harvest in 2025 at 78.8 million tonnes.

The State Statistics Service (Rosstat) has said that according to preliminary data, the wheat harvest was 82.4 million tonnes in 2024 and 92.8 million tonnes in 2023. The overall grain harvest was 124.96 million tonnes in 2024 and 144.9 million tonnes in 2023.

The Central Bank decided to hold its key rate at 21% per annum on December 20, although the market expected it to hike the rate to 23%.

It said at the time that the balance of inflation risks was still significantly tilted to the upside, although certain disinflationary risks had increased.

Discussants at the meeting said the main pro-inflationary risks included a still-significant positive output gap or overheating in the economy. This, according to the Central Bank, could be the result of still-high domestic demand and increasing supply-side restrictions. "High domestic demand could be supported by the resumption of accelerated lending growth, due partly to an increase in the share of credit that is not susceptible to changes in monetary conditions," the CBR said. Further expansion of the labor shortage could cause labor productivity to lag further behind real wage growth.

The Central Bank said tougher sanctions could increase the pace at which the economy's potential grows. "If the positive output gap in the economy remains significant for whatever reason, inflationary pressure will remain elevated. Further monetary policy tightening may be needed to reduce it," the summary says.

Another pro-inflationary risk is inflation expectations remaining elevated for a lengthy period or their further growth. This factor can directly influence demand and price dynamics as well as increase secondary effects from one-time factors in the inflation dynamics.

The CBR sees risks for the ruble exchange rate and inflation in the deterioration of foreign trade conditions under the influence of negative changes in the global commodity markets and geopolitical situation.

A widening of the budget deficit and emergence of secondary effects against the backdrop changes in the budget revenue and expenditure risk also carries pro-inflationary risks. "It may be necessary to tighten monetary policy to limit pro-inflationary effects in the event of a softening of fiscal policy or expansion of preferential lending programs," the CBR said.

It said the key disinflationary risk was associated with a possible faster and more substantial slowdown in lending growth, which would lead to a more significant cooling of domestic demand and return of inflation to the target more quickly.

A slowdown in lending might result from tighter price and non-price conditions, including due to a decrease in the risk appetite of banks under the influence of the whole set of decisions taken by the CBR, as well as a more significant decrease in demand for credit from borrowers.

https://interfax.com/

Source: Interfax  |  #grain   |  Comments: 0   Views: 1

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