The Bank of Russia has decided to maintain its key interest rate at 21% per annum, according to a statement by Governor Elvira Nabiullina following the Board of Directors meeting on March 21, 2025. The decision comes as price growth rates are gradually decreasing, largely due to the bank's restrictive monetary policy. However, inflation pressures remain high and expectations elevated, necessitating prolonged tight monetary conditions.
Governor Nabiullina noted that "our further decisions will depend on how fast and sustainably inflation is decelerating and whether this is sufficient to bring it back to 4% in 2026." She added that while the probability of raising the key rate has decreased, it remains an option if necessary.
Inflation remains high, driven by persistent demand-side pressures. Although core inflation is slowing down, it remains close to 10%. Price growth in services and food segments continues at a high rate, but non-food inflation has moderated. This slowdown is particularly evident in durables like cars and household appliances.
A stronger ruble has also influenced price dynamics. However, Governor Nabiullina cautioned against drawing conclusions about its future impact on inflation. Households' inflation expectations have decreased to 12.9%, the lowest since last September, but remain elevated.
Economic activity slowed slightly at the beginning of the year compared to late 2024. Consumer activity was high in January due to wage increases driven by early bonus payments related to tax changes. Investment demand shows signs of moderation with reduced sales of freight vehicles and construction materials.
The labor market remains tight but shows signs of easing shortages. The economy appears headed for a soft landing without sharp fluctuations.
Monetary conditions have eased slightly in terms of pricing but remain tight otherwise. Lending growth rates have slowed below last year's peaks but are affected by budget payments as well as lending.
Budget expenditures were high in January and February due to early financing under government contracts. The Ministry of Finance aims to reduce the structural primary deficit by year-end.
Export dynamics have been stable recently while import expansion slows due to restrictive monetary policy. This has increased the trade balance surplus and strengthened the ruble.
Risks remain unchanged with proinflationary factors prevailing, especially concerning labor markets and inflation expectations. External environment changes pose both proinflationary and disinflationary risks depending on geopolitical developments.
Governor Nabiullina emphasized that "further developments are highly uncertain," highlighting external conditions as a significant factor affecting future decisions. The bank's approach focuses on sustained trends and conservative risk assessment to achieve its inflation target by 2026.