Monetary policy guidelines, reflecting the Central Bank's medium-term macroeconomic development forecasts, the work to be done in the monetary sphere in the coming years, as well as the measures that the Central Bank will take in case of changes in external and internal economic conditions and approaches to the implementation of monetary policy.
The project also reflects the measures planned for the coming years to improve the monetary policy instruments, the domestic foreign exchange and money markets, and the development of analytical and forecasting capacity.
While working on the monetary policy guidelines for 2022 and 2023-2024, the goals of ensuring price and financial stability in the economy and reducing inflation to the target level of 5% by the end of 2023 were primarily taken into account.
The global economy in 2020, during the coronavirus pandemic and the global economic crisis caused by pandemic impact, experienced a sharp decline in economic activity due to the imposition of strict quarantine restrictions and disruptions in supply chains, as well as significant easing of monetary and fiscal policies.
In 2021, as a result of a slight improvement of the pandemic situation, mitigation of quarantine measures and an increase in the adaptation level of economic entities to the pandemic, there was a significant recovery in economic activity and the achievement of a pre-pandemic level of aggregate demand.
At the same time, a slower recovery of aggregate supply in comparison with aggregate demand in changing climatic conditions and disruptions in supply chains has led to an acceleration of inflationary processes around the world.
The significant increase in prices for basic food products since the last quarter of 2020 and for energy resources since the beginning of 2021, also led the inflation above the target in most countries.
The measures taken in the country in 2020 and the past 9 months of 2021 in the field of fiscal, monetary and structural economic reforms have become factors in stimulating economic activity and aggregate demand. As a result, the real economic growth in 2020 amounted to 1.7%, in the first 9 months of 2021 – 6.9% and the expected range of 6.5-7.2% by the end of 2021.
In the context of the pandemic, in order to achieve a balance between the tasks of supporting economic activity and ensuring price stability in 2020, the Central bank's policy rate was cut from 16% to 14%, and monetary conditions were slightly eased and transferred to a moderately tight phase. Over the last 9 months of 2021, monetary conditions have remained unchanged.
It should be noted that there remains a high level of uncertainty about future changes in external and internal economic conditions. In this regard, taking into account the scale and duration of the impact of external and internal factors of medium-term forecasts of macroeconomic development, the baseline and alternative scenarios were developed.
While developing those scenarios, changes in external economic conditions, forecasts of international financial institutions for the world economy and prices for main export goods, the expected situation in the main trading partners, and likely trends in domestic economic conditions were taken into account.
The pandemic situation was considered an important criterion in determining the conditions of the scenarios, since the progress of the vaccination process in the world is becoming the main factor determining the rapid recovery of economic growth in developed countries and the relatively slow recovery in developing countries.
In addition, this year, climate change and the supply of basic food products, indicators of financial stability, as well as planned reforms and their expected results are taken into account as important factors in the forecasts.
In the baseline scenario of macroeconomic development, a gradual improvement in external and internal economic conditions is expected without significant external risks. The situation with the pandemic is normalizing, long term restrictions on the migration of human resources and cross-border movements will not be introduced.
The conditions of this scenario assume the continuation of high growth rates of economic activity, as well as a full recovery of investment and consumer demand to the pre-pandemic level.
According to forecasts under this scenario, the volume of gross domestic product in 2022 will reach its potential level and the real economic growth will be 5.5-6.5%, and about 6% in 2023-2024.
Private domestic and foreign investment and structural reforms in various sectors of the economy are considered as the main driving forces of economic growth in the baseline scenario.
Ensuring macroeconomic stability for upcoming years require conducting gradual fiscal consolidation in 2022 and it is expected that the overall fiscal deficit will decrease to 2-3% in 2023-2024.
Based on the influence of the above factors and the degree of liberalization of regulated prices, it is expected that the inflation rate is expected to be 8-9% in 2022 and decrease to 5% in 2023-2024.
The conditions of the alternative scenario of macroeconomic development are based on such probabilities as the unfavorable formation of external economic conditions as a result of the persistence of a tense situation with the pandemic and a slowdown in economic activity.
According to this scenario, real growth in gross domestic product is estimated at 3-4% in 2022. With the transition of the situation to the normal phase, there will be a recovery in economic activity and gross demand from 2023, and it is estimated that real GDP growth in 2023 will be 4.8-5.8%, and in 2024 - 5.5-6.5%.
In order to support domestic economic activity, fiscal stimulus will continue in 2022, and the expected fiscal deficit will be about 4-5% of GDP. Fiscal consolidation will begin in 2023 to ensure macroeconomic stability, and the fiscal deficit is projected to decrease to 3-4% of GDP in 2023 and to 2-2.5% in 2024.
The formation of macroeconomic development under the conditions of an alternative scenario will require postponing the liberalization of regulated prices for future periods. As a result, under this scenario, the overall inflation rate is projected to be 7.5-8.5% in 2022 and about 5.6-6.6% in 2023.
In each of the above scenarios, the main goal of monetary policy is to ensure price and financial stability in the economy and achieve the inflation target. In this case, the degree of tightness of monetary conditions is determined depending on the formation of the situation inherent in the scenarios.
If monetary policy conditions remain relatively tight in the baseline scenario, then in the alternative scenario, measures may be taken to slightly ease monetary conditions, as well as to ensure a balance between stimulating the economy in order to maintain economic activity and price stability.
In the coming years, along with the further improvement of the operational mechanism and the development of the money market, the Central Bank will focus on measures to implement the next stage of reforms in the domestic foreign exchange market, strengthen analytical and forecasting potential and increase the effectiveness of the transmission mechanism of monetary policy.
The task of increasing the efficiency of the transmission mechanism channels is closely related to the development of financial markets, in particular the government securities market, an increase in the size of the private capital market and the development of non-bank institutions of financial intermediation in the economy.
Particular attention should be paid to the elimination of long-term factors of inflation in subsequent years. First of all, this requires the implementation of such measures as the development of competition in the consumer market, an increase in the production of consumer goods, a decrease in the concentration of imports, the development of trade and service infrastructure in the regions.
Successful implementation of these structural reforms after reaching the target level of inflation will gradually shift monetary conditions into neutral state.