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May; fiscal dominance in reverse


Yesterday, we published Russian Economy Monthly - May; fiscal dominance in reverse. Excerpts from the front page are given below.

A year into the recession, the economy is starting to show evidence of bottoming out, but the adjustment is uneven. In a few sectors the adjustment has mostly run its course while others are only midway through.

Fiscal vs. monetary policy. While monetary policy turned a corner with the easing cycle in full swing, fiscal policy (with largely growth-neutral amendments this year) is to enter consolidation in 2016. Coordinating monetary policy is becoming crucial in determining the path of recovery.

Consumption vs. investment demand. Domestic demand nose-dived in early 2015, but as household demand ticked up in non-food categories, investment demand continued contracting, at -7.6% YoY in May.

Corporate vs. retail lending. Corporate lending added another modest increase of 0.5% MoM in May, while retail lending was still in the red as the portfolio continues sliding at -1.0% MoM.

Tradable vs. non-tradable industries. While corporates in select tradable sectors enjoyed record profits, driven by a weaker RUB, non-tradables continued to sink deeper.

Month ahead. Coordination of monetary policy becomes crucial. July will see the discussion over fiscal policy for 2016-18 intensifying, while the CBR’s BoD meeting, scheduled for 31 July, will show how the tight fiscal outlook is influencing the key rate’s normalisation path.

Alexander Isakov, Petr Grishin
VTB Capital analysts

Russia, CBR

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