MOSCOW (Reuters) – Russia’s central bank said on Wednesday it is working on measures to support the economy should oil prices fall by as much as a third or more, showing growing concern as the ruble slides and Western sanctions take a toll.
Punitive measures by the West over Moscow’s role in the Ukrainian crisis have pushed the economy of President Vladimir Putin’s Russia towards stagnation. The International Monetary Fund halved its growth forecast for 2015 to just 0.5 per cent. The World Bank estimates the economy will expand next year by only 0.3 per cent.
The Central Bank told Reuters it is developing a “stress scenario” that envisages a drop in the oil price down to $60 per barrel.
This would be added to three existing scenarios for the central bank’s policy outlook for the next three years, and compares with a $100 assumption in the 2015-17 state budget adopted last week.
“The Bank of Russia is developing a stress scenario with a significant deterioration in the external economic environment compared to its (current most pessimistic scenario),” the bank said in an email statement.
“In the stress scenario, it is proposed to assume even a more pronounced deterioration in the price of oil, up to the level of $60 per barrel.”
The bank’s current most sober outlook envisages oil falling to $86.5 per barrel by 2017. Its base scenario assumes the oil price will be above $100 per barrel for the next three years. Even then, it predicts only modest economic growth.
Oil and gas produce about a half of Russia’s federal government revenues. Already the price of Urals URL-E, Russia’s chief crude blend, has fallen to around $92, while companies are struggling to raise capital due to Western sanctions imposed over Russia’s actions in Ukraine.
The IMF’s mission head to Russia, Antonio Spilimbergo, said the uncertainty about international tensions present downside risks to the IMF’s already lowered growth forecast.
“There are considerable risks and the risks are related to the continuation or worsening of the geopolitical situation,” he said. “Uncertainty makes investors very reluctant to invest in Russia.”