On December 20, 2024, the Bank of Russia’s Board of Directors decided to maintain the key rate at 21.00% per annum. The decision comes as monetary conditions have tightened more significantly than anticipated following the October key rate decision. According to the Bank of Russia, this tightening is due to factors independent of monetary policy.
The Bank noted that “the achieved tightness of monetary conditions creates the necessary prerequisites for resuming disinflation processes and returning inflation to the target.” It will assess whether a key rate increase is needed in future meetings based on lending and inflation trends. The Bank forecasts annual inflation will decrease to 4.0% by 2026.
In October and November, seasonally adjusted price growth averaged 11.1% annually, down from 11.3% in the previous quarter. However, underlying inflationary pressures have increased due to strong domestic demand. Core inflation rose to an average of 10.9% during this period from 7.6% previously.
Inflation expectations are rising, adding inertia to underlying inflation. Household and business price expectations increased in December, with analysts adjusting their forecasts for 2025–2026.
Current price growth is expected to remain high temporarily due to fiscal stimuli effects, past high credit activity, and ruble depreciation impacts on prices. However, the Bank anticipates inflationary pressures will decline soon due to tight monetary conditions and cooling lending activity.
High-frequency data indicates that in October-November, the Russian economy grew at a rate similar to Q3 figures for 2024, driven mainly by strong domestic demand. The economy’s upward deviation from balanced growth remains significant.
The labor market remains tight with unemployment hitting a new low and wages outpacing productivity growth. However, demand for labor in certain industries is decreasing slightly as employees are reallocated across sectors.
Monetary conditions have tightened substantially since mid-2024 due to autonomous factors like tighter macroprudential policy and banking regulation normalization. In October, interest rates increased across various financial market segments more than expected after the October key rate hike.
This rise supports a higher propensity for saving among economic agents while credit activity cools across all market segments. Retail lending growth nearly stopped in November, and corporate lending decelerated significantly for the first time since early 2024.
Over the medium term, inflation risks remain skewed upwards despite some increasing disinflationary risks related to slower lending growth and domestic demand under tighter monetary conditions.
The Bank considers announced fiscal policy parameters which could have a disinflationary effect upon normalization in 2025 but notes that changes may require adjustments in monetary policy.
The next key rate meeting by the Bank of Russia’s Board of Directors is scheduled for February 14, 2025.
Statement by Bank of Russia Governor Elvira Nabiullina followed this meeting on December 20, 2024.
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