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On the Bank of Russia key rate

25 April 2014
Press release

On 25 April 2014 the Bank of Russia Board of Directors decided to raise the key rate to 7.5 percent per annum due to higher inflation risks. The probability of inflation exceeding the 5.0% target at the end of 2014 has increased substantially. This has been caused by more pronounced than expected pass-through effect of the exchange rate dynamics on consumer prices, the rise in inflation expectations, as well as unfavourable conditions in the markets for some goods. The Bank of Russia does not intend to lower the key rate in the coming months. The Bank of Russia estimates that the adopted decision would ensure the decline in inflation to no more than 6.0% by the end of 2014.

In March - April 2014, the year-on-year consumer price growth rate rose and stood at 7.2% as of 21 April 2014. Weekly inflation has persisted at 0.2%. Inflation acceleration has been mainly caused by the larger than expected impact of exchange rate dynamics. Unfavourable conditions in the markets for some goods, such as dairy products, sugar, pork, and petrol, also have contributed to higher inflation rates. Some additional inflationary pressure has come from a temporary surge in consumer demand for non-food goods amid the rise of inflation expectations. As a result, there was the increase in prices for a wide range of goods, including domestically produced goods, as well as services. In March 2014, core inflation accelerated to 6.0% from 5.6% in February.

The current economic slowdown is predominantly structural by nature and thus does not exert any noticeable downward pressure on inflation. Historically low unemployment rate constrains economic growth potential. Due to demographic trends the impact of this factor will persist in the long run. Utilisation of commercially viable production capacity remains relatively high. Labour productivity growth is sluggish, while fixed capital investment continues to contract because of declining profits in the real sector, limited access to long-term financing in both international and domestic markets, as well as low producer and consumer confidence. Uncertainty about international political situation also hampers production and investment. Besides, weak economic activity in most countries, which are Russia’s trading partners, restrains the economic growth of Russia. At the same time, persistently high oil prices have a stabilising effect on the domestic economy and public finance.

In March - April 2014, household rouble deposit rates began to grow. This was caused by the conversion of funds to foreign currency due to higher inflation expectations and by increasing bank funding costs, inter alia, as a result of the Bank of Russia’s decision to raise the key rate in March 2014. In addition, banks tighten lending conditions, in particular, by increasing loan rates. At the same time, weak economic activity restrains demand for loans and respectively curbs a rise of interest rates on loans.

According to the Bank of Russia projections, a year of 2014 will continue to witness a downward trend in economic growth. Boost to economy from the observed rouble depreciation will be limited. Amid economic uncertainty and declining producer confidence there is a strong probability of a reduction in fixed capital investment. Combination of slower growth in real wages and a decline in household lending growth rates will have a dampening effect on consumer activity.

Inflation will stay around the current level until the mid-2014. In the second half of the year, consumer price growth will decelerate as a result of lower planned hikes in administered prices and tariffs, falling inflation expectations, and the aggregate output of goods and services remaining below potential. Since monetary policy affects the economy with a lag, the probability of inflation exceeding the 5.0% target at end-2014 has increased substantially. The adopted decision on the key rate would ensure the decline in inflation to no more than 6.0% by the end of 2014 and help to maintain the appropriate balance of inflation risks and the risks of further economic slowdown. In the medium term the effect of factors behind the observed acceleration in consumer price growth will be exhausted and in the absence of any new shocks to the economy inflation will hit the target levels set in the Guidelines for the Single State Monetary Policy in 2014 and for 2015 and 2016.

The next meeting of the Bank of Russia Board of Directors on the key rate is scheduled for 16 June 2014. The press-release on the Bank of Russia Board of Directors’ decision is to be published at 13:30, Moscow time.


Interest rates on the Bank of Russia major operations1
(% p.a.)

Purpose Type of instrument Instrument Term Rate since 03.03.14
(from 11:00 Moscow time)
Rate since 28.04.14
              Liquidity provision Standing facilities (fixed rates) REPO
Overnight loans
Lombard loans
Loans secured by gold
Loans secured by non-marketable assets and guarantees
FX swaps (rouble leg)
1 day 8.00 8.50
Open market operations (minimum interest rates) Loans secured by non-marketable assets, auctions2 3 months 7.25 7.75
REPO auctions from 1 to 6 days3, 1 week 7.00
(key rate)
(key rate)
Liquidity absorption Open market operations (maximum interest rates) Deposit auctions from 1 to 6 days3, 1 week
Standing facilities (fixed rates) Deposit operations 1 day, call 6.00 6.50
Memo item:
Refinancing rate 8.25 8.25

1 Complete information on interest rates on the Bank of Russia operations is given in the Table Interest rates on the Bank of Russia operations.

2 A floating interest rate linked to the level of the Bank of Russia key rate.

3 Fine-tuning operations.

Information notice "On the procedure for conducting fine-tuning operations".

Information notice "On fine-tuning operations to absorb liquidity".

The reference to the Press Service is mandatory if you intend to use this material.