The Bank of Russia has announced an increase in the key interest rate to 21% per annum, as revealed by Governor Elvira Nabiullina following a Board of Directors meeting on October 25, 2024. This decision comes in response to accelerated price growth since September and heightened inflation expectations.
Governor Nabiullina highlighted that lending continues to grow rapidly amid limited labor resources and high capacity utilization rates. Enterprises are facing challenges in expanding their output of goods and services. The government has also announced increased budget expenditures, further tariff indexation, and a rise in the recycling fee. These factors have contributed to high inflation levels projected to reach 8.0–8.5% this year.
Nabiullina stated, "We will need a significantly tighter monetary policy next year in order to curb the accelerated price growth." She explained that inflation shows no signs of slowing down, with core inflation exceeding 9%. Inflation expectations among households and businesses have reached their highest level over the year.
The economy showed moderate growth in the third quarter of 2024, with demand increasing at a slower pace. However, supply-side constraints remain significant due to tight labor markets and logistics bottlenecks. Despite cooling demand, these constraints continue to exert pressure on prices.
Monetary conditions have tightened but not enough to counter rising inflation expectations fully. Corporate lending remains robust due to subsidized programs, while retail lending has started responding more noticeably to rate increases.
External conditions also play a role, with global economic growth decelerating and mixed effects on oil prices from geopolitical tensions and reduced global demand for commodities.
Governor Nabiullina outlined risks to the baseline forecast including persistent demand-supply gaps and geopolitical uncertainties affecting foreign trade. She emphasized that achieving the inflation target would require conservative responses to proinflationary risks.
In conclusion, Nabiullina stated that "the Bank of Russia remains determined to return inflation to the target of 4%." The key rate is expected to average 17.5% in 2024 before gradually declining towards its neutral range by 2027.