By Alexander Marrow
MOSCOW (Reuters) – Further interest rate cuts by Russia’s central bank would be appropriate amid falling inflation and structural reforms are key to speeding up growth, the head of an International Monetary Fund (IMF) mission said.
The central bank has cut its key rate four times this year9, most recently by 50 basis points to 6.5%, but economic growth so far has been sluggish despite falling inflation.
The next rate-setting meeting is Dec. 13.
After visiting Russia from Nov. 13-20, IMF mission leader James Roaf said weak domestic demand and an unfavourable external environment had held back growth, with GDP projected to grow by 1.1% in 2019.
Roaf said in a statement issued late on Wednesday that the GDP growth forecast of 1.9% in 2020 was due to government spending delays over 13 projects, ranging from healthcare and education to infrastructure, which President Vladimir Putin has placed at the heart of an economic growth plan.
“Structural reforms remain key to accelerate growth,” said Roaf. “The national projects, if selected according to rigorous economic criteria and implemented effectively, are expected to contribute positively to growth by improving infrastructure and supporting a healthier and better-educated workforce.”
Roaf also drew attention to Russia’s “excessive bureaucracy, regulations and legal uncertainty”, saying reforms were needed to “tackle the lack of competition and the large footprint of the state.”
The mission visited Russia to discuss economic developments, the economic outlook and learn more about policy.
Russia’s National Welfare Fund (NWF) won praise from the IMF delegation for its success in insulating the economy from oil price fluctuations. Under ministry rules, the finance ministry may start spending the NWF once it exceeds the 7%-to-GDP cap.
Roaf recommended that NWF funds be invested in liquid foreign assets once the threshold has been reached.
“Any use of NWF resources domestically should be subject to tight limits and a strong governance framework to guide project selection and ensure market rates of return,” said Roaf.
(Reporting by Alexander Marrow, Editing by Katya Golubkova and Timothy Heritage)