Russia's central bank may review probability of its scenarios if oil stays low

[December 28, 2015]  By Elena Fabrichnaya

MOSCOW (Reuters) - Russia's central bank may review the probabilities of its base and risk scenarios if oil prices stay low for a prolonged period, Igor Dmitriev, head of the bank's monetary policy department, told Reuters.

The bank's current "risk" scenario is based on the price of oil, Russia's main export and source of revenues, remaining at around $35 a barrel for the next three years, while its base scenario assumes a crude price of $50.

Benchmark Brent crude <LCOc1> was at $37.2 per barrel on Monday.

"If signs emerge that this is not just a short-term drop in oil prices and fundamental reasons appear which suggest it is for a long time -- for at least a quarter -- then we might revise the probability of our scenarios," Dmitriev said in his first major media interview.

Russia's economy has been buffeted by weak oil prices, which touched an 11-year low of $35.98 per barrel last week, and by Western sanctions over Moscow's role in the Ukraine crisis.

If oil prices remain low through January, Dmitriev said the central bank may consider "adjustments to its (economic) forecasts" to take changing oil price dynamics into account, although he did not expect a major revision.

Dmitriev said the central bank might still cut its key interest rate at one of three upcoming meetings if risks and inflation eased. Such a cut could be either small or large-scale, he said.

He said the rouble, which has lost more than 50 percent against the dollar since mid-2014, is close to its equilibrium value but that external pressures such as oil and a continued slowdown in Chinese economic growth could spur more volatility.

He added that the U.S. Federal Reserve's recent interest rate hike was reducing volatility in financial markets and that Russia's central bank was factoring the Fed's policy into its own forecasts.

Dmitriev also said Russia's annual inflation rate was unlikely to exceed 13 percent in 2015 and that the central bank would apply a 'do no harm' rule when it came to replenishing its gold and forex reserves, although he did not explain further.

Russia's gold and forex reserves are currently static at almost $369 billion and the central bank has said it would consider gradually increasing them to a "comfortable" pre-crisis level of $500 billion.

(Reporting by Elena Fabrichnaya; Writing by Polina Devitt and Katya Golubkova; Editing by Andrew Osborn and Catherine Evans)

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