The International Monetary Fund halved its forecast for Russia's 2015 gross domestic product to 0.5 percent on Wednesday, saying that international tensions had created downside risks to its estimates.
“Geopolitical uncertainties are having a big direct impact on the Russian economy,” Antonio Spilimbergo, the IMF's mission head to Russia, told journalists.
US, EU Sanctions Imposed on Russia, Unveiled July 29, 2014
New US, EU sanctions on Russia
- Until July 29, 2014, sanctions solely targeted individuals and organizations accused of directly threatening Ukraine and its interests
- New sanctions prohibit Russian state-owned banks from raising funds in Western capital markets
- About 30% of Russia’s banking sector will be impacted
- Energy-related technology used for Russia’s oil exploration and development is blocked
- Affected areas include technology relating to deep-water or Arctic drilling and exploration projects
- EU officials say the ban extends to about 10% of overall energy exports to Russia
- Restrictions on Russian arms exports
- A ban on trade of dual-use sensitive defense technologies with Russia
Sources: Reuters and multiple news reports
Russia is embroiled in conflict with Ukraine. Consequently, western countries have imposed a series of sanctions against Moscow, which has retaliated with counter-sanctions of its own. Both are taking a toll on its economy.
The IMF also urged Russia's central bank to tighten its monetary policy to anchor inflation expectations. It expects inflation this year to come above 8 percent.
“The monetary policy is very important to keep inflation on target and it is important to anchor inflation expectations,” Spilimbergo said.
The central bank has an inflation target for next year of 4.5 percent, plus/minus 1.5 percentage point.
Spilimbergo urged the central bank to raise rates and keep them positive in real terms, above inflation.
“Our recommendation is for a tighter monetary policy stance and at the same time defend the credibility of the central bank,” he said.
At last month's rate-decision meeting, the central bank kept rates unchanged, leaving its key rate, the one-week minimum auction repo rate, at 8 percent.
Spilimbergo also said the IMF supports the central bank's stance against restrictions on cross-border capital movement.
“The position of the central bank of Russia is against capital controls,” he said. “We agree with this assessment. In the present time, they would be not helpful and we do not recommend them.”