Hence, in the second half of the year, when the buildup of government reserves ground to a halt, a considerable part of export revenue, if unspent to reduce external debt, ultimately settled in bank accounts as extra foreign currency liquidity. Incidentally, this is why the response of the foreign exchange rate to the purchase suspension decision was fairly muted. The market essentially continued to expect their resumption and accumulated assets. Next year, our baseline scenario provides for a return to the 2017–2018 situation, with a significant amount of oil revenues being used to rebuild international reserves and the private sector’s capital outflow declining. Importantly, in this logic we do not foresee a strong response of either the current balance or the foreign currency exchange to resumed purchases. To conclude, let me reiterate that the Bank of Russia will explore the need for further upgrades to the key rate, taking into account inflation and economic developments against the forecast, as well as the risks of external conditions and the response of financial markets. In the current context it is crucial that our approach remains conservative as we assess risks and conduct monetary policy. Inflation stays close to 4%. More so, it has never climbed above this figure since the second half of 2017. Although the rise in inflation early next year is set to be driven by transient factors, considering the need to limit their negative effects and ensure a speedy return of inflation to 4%, it is critical that the response of monetary policy is well-timed.
Elevated inflation expectations may change consumer behaviour and reduce the propensity to save. In these circumstances, firms will have an opportunity to raise retail prices even when the effect of one-off factors is exhausted. If this spiral is set off, inflationary pressure will rise and inflation may hold above the 4% target for a long period of time. This will require a considerable and enduring monetary policy tightening. The task is to reduce as much as possible the risks of this scenario materialising. In addition, full-year inflation will total about 4% in 2018. This means that we are entering the new year without the inflation buffer we had and with a substantially upgraded inflation forecast for next year. This is why we are raising the key rate. At this moment in time, in the context of strengthened risks, it is crucial that we remain proactive. This approach reflects a key inflation targeting policy principle. We look to the outrunning response of monetary policy to enable us to constrain the secondary effects and ensure inflation declines after its temporary rise. We admit that between March and April inflation could exceed 5.5% or even peak to 6%. Its acceleration in the first quarter of 2019 is set to precede its subsequent slowdown. Should we take action to curb the secondary effects, beginning from the second to third quarter of 2019, seasonally adjusted quarterly price growth will total 1 pp, that is, it will be consistent with 4% annualised inflation.