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Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting 6 September 2019

6 September 2019

Today, the Board of Directors has decided to reduce the key rate to 7% p.a.

If economic conditions are in line with our forecast, we will look into further key rate reduction at one of the upcoming meetings.

Let me dwell on the main factors behind the decision.

First. Annual inflation has already approached 4%. Our estimates suggest that as of the year-end it will fall within the range of 4.0-4.5%. Meanwhile, inflation is forecast to stand at 3.5-4.0% in the opening months of next year. This is largely associated with the fact that the VAT rate increase will be factored out from the calculation of annual inflation. This may be considered as a purely technical factor. Sustainable trends point to inflation of about 4%.

Second. Inflation expectations of households and businesses remain elevated. Therefore, we stay focused on their dynamics.

Right now, I will not highlight the figures we released last week. However, I would like to note that previously we abstained from posting the results of surveys on household inflation expectations during ‘the week of silence’. We have discussed this issue and from now on we will publish these data as soon as they are released. It is essential that the market promptly receives the information which the Board of Directors consults when making its decision. The Bank of Russia will continue to publish its analytical commentary that summarises and estimates expectations of households, businesses and analysts, after ‘the week of silence’.

Third. Monetary conditions are continuing to loosen. We expect that both previous and today’s key rate decisions will underpin this trend.

Market expectations for interest rates shifted downwards on the back of the signals in the follow-up to the Board meetings in June and July. This was also driven by the shifting expectations for monetary policies of the US Fed and the ECB as the economic growth outlook for the US and euro area deteriorated.

The decline in interest rates comes with an easing of non-price lending conditions in terms of maturities and volumes. The easing of both price and non-price monetary conditions contributes to expansion in lending. According to our estimates, corporate lending will rise by 7-10% while retail lending will increase by 15-20% this year.

Fourth. Economic activity undershot the Bank of Russia’s expectations in the second and early third quarter. This results from internal and external factors. This made us revise our 2019 GDP growth forecast from 1.0-1.5% to 0.8-1.3%.

An important external factor is a slowdown in growth of the global economy, which has proven more tangible than expected due to, among other things, the growing contradictions in international trade. A weakening in domestic demand already reduced export quantities in the first half of the year, and we forecast that they will contract for a wide range of goods as of the year-end.

The deterioration in the global growth outlook also affects investment plans. Though, certainly, business sentiment depends not only on external factors but also on the business environment as a whole. In the first half of the year, growth in fixed capital investment slowed considerably, which is associated with, among other things, a rather sizeable drop in public investment. According to our estimates, even with a revival in national project expenditures in the second half of the year factored in, total growth of gross fixed capital formation will come in at no higher than 1% as of the year-end.

Consumer demand continues to make a positive contribution to GDP growth. This year, the expansion of lending continues to offer strong support to consumption growth. Loans, however, cannot be the main driver of growth in demand. Consumption growth will remain slack as household incomes stagnate. This year, we expect it to come in at 1-1.5% range.

We have also updated our medium-term baseline forecast. Now, we expect the dynamics of domestic and external demand to be more moderate in 2020-2021. The most notable revision has been made for export growth rates. This reflects the deteriorated world economic outlook amid rising trade tensions.

As a result, we may only expect GDP growth to accelerate to 2-3% by the end of 2022, rather than in 2021. A higher economic growth rate should primarily be driven by the shift to a more extensive implementation of national projects and other governmental measures aimed at removing structural constraints. This will promote an increase in investment demand and a quicker rise in labour productivity, household income and, accordingly, consumption.

Lending will sustainably expand over the entire forecast horizon supporting economic growth. Corporate lending will annually increase at a pace of 6-10%, and household lending will grow by 10-15% each year. Mortgage loans will account for the bulk of household lending growth. Meanwhile, macroprudential measures will gradually reduce the growth pace of consumer lending.

We have updated the balance of payments to factor in the world economy dynamics, prices for oil and other Russian exports. We assume a gradual decline in oil prices to 50 US dollars per barrel in 2021 (as compared to 55 US dollars considered earlier). If external demand weakens, prices for other Russian exports will drop, too. In such conditions, the current account balance will shrink from 83 billion US dollars (5% of GDP) this year to 28 billion US dollars (which is about 2% of GDP) in 2022.

Given the actual dynamics observed since the beginning of the year, we have also slightly lowered the 2019 forecast for the private sector’s financial account balance from 50 to 40 billion US dollars. Later on, it is expected to gradually reduce to 20 billion US dollars by the end of 2022. I would like to emphasise once again that the fiscal rule mechanism smooths out the impact of a decrease in the current account balance on the domestic economic environment. However, it only pertains to oil price fluctuations.

I would like to stress that we have slightly changed our approach to publishing forecast scenarios. The key rate decision relies on our baseline macroeconomic forecast and the analysis of uncertainties and risks for the baseline forecast. This is the reason why we will continue to publish the baseline scenario four times a year in our press releases and Monetary Policy Report following core meetings.

We will release our supplementary scenarios – the high oil price scenario and the risk scenario that assumes that prices will plunge – in the same manner as the baseline scenario but once a year, in the Monetary Policy Guidelines. It is determined by the essence of these scenarios that remains almost unchanged across the meetings. The 2020-2022 Guidelines will be published on Monday.

Winding up, I would like to comment on monetary policy prospects.

After the five years of the evolution from tight to moderately tight and then to neutral monetary policy, we have finally entered the key rate range we consider as a probable neutral interval. Given today's decision, the key rate is at the top of this range equalling from 6% to 7% in nominal terms, or from 2% to 3% in real terms, which is the same, with inflation expected to reach 4%.

In this regard, it is of note that the neutral key rate estimate is not ‘a point’, but a range of values. It depends on various domestic and global drivers, as well as the monetary policy transmission mechanism, and may alter, being affected by them. It will therefore take time to ‘feel’ the thresholds of this ‘neutral range’ and make sure that they are in line with our current estimates. If necessary, we will adjust these estimates.

A sustainable inflation rate close to the 4% target will be the key criterion suggesting that we are right in our estimates of this range.

Q&A for the Media

QUESTION from RIA Novosti:

Ms Nabiullina, today, the Central Bank gave a slightly different signal in its statement. It reads that the Bank ‘will explore the need for’ rather than ‘admits the possibility of’ a further key rate reduction at one of the upcoming meetings of the Board of Directors. Could you please explain the difference between these two signals? Thank you.


We gave a signal. In fact, we have already used the wording ‘explore the need for’ [in the press releases of 14 September, 26 October and 14 December 2018] and we think a key rate reduction is possible at one of the upcoming meetings. One of the upcoming meetings means one of the next three meetings.

QUESTION from Bloomberg:

You have removed the forecast concerning the achievement of a neutral rate from your statement. As far as I understand, this means a possible update of the 6–7% range. How feasible is the prospect of its downward revision? When can this move be expected?

Another question, if I may. Have you discussed the revision of reserve ratios by the People’s Bank of China by 50–100 bp and, if you have, which conclusions have you drawn?


Let me reiterate our view of a neutral range. Firstly, this is an estimated, conditional value which is based on model estimates of various indicators. In fact, we are more concerned about neutral monetary conditions than about the key rate level. To that end we constantly monitor recent developments to see if we can deliver on the 4% target or not. Therefore, we admit the possibility of such a revision; however, we are not certain about it yet.

Though we realise that, for instance, the level of global equilibrium rates may decline, too. This is one of the factors we take into consideration. We should also take into account the country premium and the effect of the transmission mechanism. I repeat that we are concerned about [monetary policy] conditions. Therefore, a revision is possible but will not necessarily take place. We only want to emphasise that we have entered the neutral range corresponding to our earlier estimates.

As far as China’s move is concerned, we have not discussed this decision. When we discuss the global economy, we look at the overall economy of other countries and their financial markets. The People’s Bank of China announced this move earlier this week and we certainly took it into account together with the other factors we assessed.


In recent years, the Central Bank and the Ministry of Economic Development produced similar inflation forecasts. Now they differ considerably. The Ministry of Economic Development doesn’t think that inflation will hit the target either this or next year. Do you envisage such a risk and what is your assessment? Thank you.


Indeed, there are differences in our inflation estimates for this and next year. When making estimates for this year (4–4.5%), we take it into account that most indicators which characterise stable inflation factors (which include not just one monetary inflation indicator net of administered prices and the likes, but indicators of more than 20 types characterising certain inflation aspects) point to inflationary pressure which corresponds to the level of about 4%.

Furthermore, we assess the factors which are most likely to materialise throughout the year – both proinflationary and disinflationary ones – and we think that disinflationary and proinflationary risks are currently balanced and therefore we have produced such forecast.

Regarding the forecast for the next year, our analysis shows that the inflation forecast by the Ministry of Economic Development primarily takes into account consumer lending, the estimates of which seem to us unrealistic. We think that 4% comprises unrealistic consumer lending dynamics. We estimate consumer lending dynamics at about 10%. As I have said, overall 10-15% [will be accounted for by growth of retail lending], with mortgage lending adding 20% and consumer lending increasing by approximately 10%. Growth [of unsecured consumer lending] will decline primarily on the back of our macroprudential measures. Our macroprudential measures are aimed at the smooth reduction of consumer lending growth. We can see no possibility of reducing the growth rate to 4%.

QUESTION from Reuters:

In recent months, there has been widespread discussion of risk assessment under Basel III. The Central Bank relies on inhouse assessment. Here you have some new serious opponents: the Ministry of Finance, the Ministry of Economic Development and a number of large companies. The President set the deadline at the end of August (the latest publicly available letter).

Have you already discussed the issue with the President? Do you expect to find common ground on this reform with your opponents? Are you ready to postpone some of your initiatives or ease their implementation? Thank you.


As regards the changes, they are really a considerable revision of banking regulation governing risk assessment. We delved into the proposals of our colleagues from the Ministry of Finance and the Ministry of Economic Development, and businesses. In fact, we tested both our proposals and the proposals to use ratings made earlier by a number of banks, and we monitored their effect on the banking system and corporate lending. Certainly, everybody wants to know what effect it will have on corporate lending.

As a result of this analysis and additional discussions, our view remains unchanged; we think that the approach that does not involve ratings is currently more appropriate and allows banks, among other things, to better assess risks associated with corporate lending. This makes it possible to lend to a wider range of businesses rather than only to high-rated companies. In fact, these companies can also enter capital markets.

Nevertheless, the discussion allowed us to find some common ground. At a joint meeting, the Ministry of Economic Development and the Ministry of Finance put forward an initiative, which we supported, to accelerate the transition of systemically important credit institutions to the advanced approach. The best approach implies that banks assess risks using their own databases and series and taking into account their risk appetite, while we validate their methods. Certainly, it is a normal practice that major banks follow the example of multiple foreign major banks and apply the advanced approach. We currently only have two banks which have adopted this approach. We all share the opinion that we should encourage such moves. Other banks which will not adopt the advanced approach, in our opinion, should use the standard approach which is not rating-based.

QUESTION from TASS Agency:

The news broke recently that the Central Bank and the Ministry of Finance rejected the name ‘individual pension capital’. Could you please explain why? What name will this system get? What is the project’s current status? Thank you.


It is not only about the name, you know. This is not about rebranding. The market is not ready for this system yet. We think we should focus on fine-tuning the current system, which included developing voluntary pension plans and pension savings. We also need to solve the acute problem which is still present despite the amendments to the legislation, the problem of transfers between non-governmental pension funds. We should focus on this issue.

QUESTION from Interfax:

Do you think that the 5% ruble depreciation in August may affect inflation? Do you think that this is a temporary development or that this weakening will have only a minor effect on inflation?

Another question, if I may. Has the debate about spending NWF funds gone any further?


Certainly, exchange rate movements influence inflation though, as you know, the pass-through ratio has decreased significantly. Our current estimates are even lower, at 0.1 pp. Indeed, exchange rate fluctuations were mixed over the year, certain effects of the exchange rate weakening may definitely manifest themselves next month. We take this into account in our [inflation] forecast. According to our estimates, the effect will be between 0.1 and 0.2 pp throughout the year.

As far as the NWF is concerned, unfortunately there are currently no such discussions. Today, when discussing our key rate decision, we considered it as one of the uncertainty factors, which is actually a risk. This is because NWF spending may have a serious impact on forecast parameters and macroeconomic dynamics. The Monetary Policy Guidelines (as I said, the draft will be released on Monday) will feature a special box describing the qualitative assessment of various scenarios of NWF funds spending and various consequences.

We will certainly work on this issue and it needs a special discussion. It is very important for us, for monetary policy, that there is certainty about this issue. I will emphasise that it is very important to maintain the stabilising role of the fiscal rule under any approach to the NWF because, I think, positive effects of the fiscal rule are already tangible and stability is gaining ground despite considerable fluctuations in the external environment. It is definitely very important for us and we are ready to proceed from this position.

QUESTION from Zolotoy Rog, a Vladivostok newspaper

Given that volatility of prices and other economic indicators is high in Russia and their readings may easily fluctuate by 5%, 10% or even 30%, don’t you think that the Central Bank is too prudent in its key rate revisions? Such minor changes hardly have any effect overall. Maybe it is time for more resolute steps?


I would say that in recent years we have not seen inflation spikes. In the past three years, overall growth rates were moderate enough. Certainly, spikes may be seen in some product groups. We can see that the fruit and vegetables category still registers either plunges or surges, high volatility and strong fluctuations in prices of certain products. However, inflation currently holds close to 4% and, therefore, there is no need for the serious steps we made, for instance, when we conducted resolute disinflationary policy to bring inflation down from two-digit to one-digit figures.

Nevertheless, changes in the key rate and inflation influence lending rates. Let me remind you that two key rate hikes last year were proactive. Retrospective analysis shows that they were the right moves, and they largely allowed us to contain secondary effects and avoid a significant surge in inflation which could have occurred unless these proactive measures were taken. However, these were rate hikes. We saw that interest rates in the economy went up, too, including mortgage rates which also affected mortgage growth.

Now we are reducing interest rates. We expect interest rates in the economy to go down. However, we will undoubtedly continue to pursue the policy aimed at holding inflation near 4%. Such small steps are currently appropriate. In fact, resolute moves are made when certain conditions, the external environment, change dramatically; then they are feasible. We do not see such developments now.

QUESTION from Izvestia:

Ms Nabiullina, I apologise, but my colleagues have already touched upon the issue of what used to be the IPC and what is now unclear what. As far as I can see you have reached an agreement with Mr Siluanov at last week’s meeting. Does the plan provide for any co-funding from the state or tax benefits for NPFs?

Another question about NPSs, if I may. If I am not mistaken, the Prosecutor General’s Office is to announce the results of the inspection of transfers between NPFs today. Are you already aware of these results?


On the subject of IPC, discussions are still in progress. Certainly, we support the development of a funded component in the pension system. We think that it is important for both pensioners’ welfare and long-term money. I will not repeat all the reasoning. Actually, you are right, fine-tuning of the effective system of pension savings is feasible, and we will discuss it as well.

As far as transfers are concerned, I am not aware of the results of the inspection by the Prosecutor General’s Office. However, to tell the truth, they are predictable. It will reveal problems and we can see these problems. I have recently met with heads of pension funds to discuss transfer challenges. The adopted laws do not rule out cases of unlawful practices of customer poaching and failures to provide customers with all information which leads customers to the loss of investment income. Certainly, this is not right, and, therefore, we think that additional measures are needed – maybe, laws – to eradicate this problem. It has yet to be solved.

QUESTION from Russia-24 TV channel:

Are there any provisional results of the introduction of escrow accounts? How does the banking sector feel? Does it fund construction, including mortgages? Was it affected?

Another question about account blocks, if I may. The Ministry of Economic Development suggested liberalising the law and abandoning account blocks in response to dubious transactions. Is the Central Bank ready to take this step?


On the subject of escrow accounts. We constantly monitor the transition to the new system, including in the regions. Figures vary across regions. I do not have these figures at hand but, if I remember them correctly, approximately 30% (it should be checked) of real estate developers are already funded through escrow accounts. Quite a few of them continue to use the old scheme because they have a large proportion of the projects completed and a large share of funds raised through equity construction. A considerable number of developers cannot be funded using the old scheme and have yet to receive new bank funding.

Certainly, we keep such companies in focus to discover why it happens. They either do not know how to prepare the documents. We can see such cases as not all developers are ready to work with banks. In some cases, supporting documents are unavailable, which local authorities should issue so that the bank can provide a full package of documents. However, some projects are not eligible for bank funding. The Government has elaborated measures which will support such projects and, therefore, we always work together.

Overall, there are really some challenges. This is a tough process implying serious changes to funding the construction sector. That said, it is moving smoothly and as expected. As a result, housing prices may increase somewhat and market volumes may change. However, I think this will be a temporary factor, if at all. As the process moves forward and competition develops, we hope that the market will enter a normal trajectory.

Regarding mortgage lending. Indeed, mortgage growth declined somewhat for two reasons. First, interest rates rose which are now going down. Second, demand for mortgage refinancing decreased because in the period of falling interest rates consumers chose refinancing. As rates started rising, they quitted this practice. Therefore, these developments should be handled with care.

We can see that mortgage lending will continue to grow as conditions favour it. I have already mentioned that we expect mortgage lending to grow by approximately 20%.

On the subject of account blocks and the AML law. We have long raised this issue. You may know that sometimes banks unfairly use their right – or better to say obligation – to deny service to a customer who violates AML laws, using, among other things, formal approaches. This and requests from the small and medium business association made us fine-tune cooperation with banks, including amendments to risk operation criteria. We established a mechanism of appeal. When figures are cited confirming the fact that the central commission reviews few cases, they are true, because most cases are now handled by banks unwilling to bring them to the commission level. The commission level is higher and the outcome is commensurate.

In our opinion, though the problem has yet to be solved, improvements are there. We are open to trying additional measures if they are balanced, that is, will not open up a window for dubious transactions. We definitely do not want the financial sector to provide an easy way to conduct money laundering. However, we need to protect bona fide customers. We have tools for such a balanced policy and protection of bona fide customers, and we are willing to engage in further efforts. Thank you.

QUESTION from Bloomberg:

Let me get back to monetary policy issues. I would like to ask a clarifying question. My colleagues have already spoken of the forecast by the Ministry of Economic Development and the Bank of Russia’s forecast. This is really confusing, and the more so that the Government’s inflation forecast was previously aligned with the Bank of Russia’s inflation target and that the forecast should increase confidence in inflation targeting. Your forecasts are now completely different. And it is therefore unclear whom we should trust and whose forecast is more accurate. How should we deal with this? But this is my opinion. I would be grateful if you give your comments on it.

To this end, I have written out a few more phrases from the forecast by the Ministry of Economic Development. Again, they vary enormously. You have just praised your decisions to increase the key rate two times. While the forecast by the Ministry of Economic Development says just the opposite. For instance, Minister of Economic Development Maxim Oreshkin writes the following: ‘The changes in fiscal policy have not only been offset in monetary policy, but its revision has actually intensified the negative effect on aggregate demand.’ This is a quotation from the official document. And the Ministry of Economic Development also considers that the Bank of Russia made incorrect decisions when it raised the key rate in September and December 2018 to prevent the impact of VAT (I am not quoting, but only referring to the text now). According to the MED, the dynamics of fixed capital investment have also got worse in this context.

I will not continue to provide citations. There are a lot of such comments there. You have definitely read them. I am just trying to comprehend: do you actually have a conflict and opposite views of the situation? Is the Government actually dissatisfied with the Bank of Russia’s monetary policy? How should we perceive this? In short, this is unclear to me. Thank you.


I see. Thank you for your question. As you know, the Ministry of Economic Development and the Bank of Russia have always had differences in the forecasts, and we have discussed these divergences. You are probably right in saying that these differences have affected inflation this time. However, despite these divergences, the Bank of Russia’s GDP estimates are currently very close to those given by the Ministry of Economic Development. We have very similar estimates of global external demand dynamics and how this influences Russia’s economy. They are really very close.

As I have already explained, we do have different opinions regarding consumer lending and, accordingly, inflation. Our specialists believe that variances in inflation estimates arise specifically because of differences in our estimates of consumer lending dynamics. I have already commented on this. In our opinion, this estimate [given by the MED] is too low. Anyhow, our policy is not aimed at reducing consumer lending. Moreover, there are currently no risks here for financial stability.

Regarding our assessment of the previously made decisions. As you remember, we did give higher estimates of inflation for the first quarter of 2019, expecting stronger secondary effects of the VAT increase. And when we assessed VAT post factum, the VAT pass-through turned out to be at the lower bound of our forecast. We also spoke of a great uncertainty about estimates and that we were making proactive decisions. Yet, inflation in the first quarter was below our forecast not because of our proactive decisions. One of the factors was that government demand and government investment were far below even our forecasts.

We said that national projects would not have immediate effects and that it would be impossible to quickly use all the funds obtained from tax payments. But the actual figure was even worse. As you know, there has been a nearly double-digit reduction in government investment. In our opinion, this has certainly affected aggregate demand.

This is why in the first part of the year, and especially in the first quarter, both monetary policy and fiscal policy were rather tight. And assessing and revising the forecast, including as regards budgetary expenditure, the Bank of Russia has been easing its monetary policy.

QUESTION from News.ru:

Ms Nabiullina, thank you for your comments on the estimates of consumer lending growth given by the Ministry of Economic Development. Could you please also comment on the MED’s estimate of real disposable income growth – only by 0.1 per cent in 2020? And what are the Bank of Russia’s estimates? Judging by the updated baseline forecast, it is Russian households who will be feeding, to put it bluntly, the entire economy in the next three years. Thank you.


Unfortunately, the dynamics of real income are really quite poor. Our estimates are close to those given by the MED for this year. Of course, the issue of real income should be primarily addressed based on economic growth, a sustainable economic growth. There are multiple factors impacting real income, including how much households pay on their loans. We understand this perfectly well.

However, economic activity, labour productivity increase and efficient implementation of investment projects are the key drivers of household income. That said, despite the delays in the implementation of projects involving government expenditure, our baseline scenario still suggests that the rate of spending will normalise and that this will contribute to economic growth and, as I have explained, to household income increase.

QUESTION from TV Omsk:

Some experts consider that the Bank of Russia’s policy is aimed at an excessive increase in foreign currency and gold reserves. Proceeds from oil and gas are thus withdrawn from the turnover and do not contribute to economic growth. There is no development of hi-tech enterprises, no new jobs created, no household income growth. The economy relies on commodities and, consequently, becomes extremely vulnerable.

The supporters of this view believe that capital should fuel the economy and should continuously stay in commerce. Otherwise, it is not capital, but rather treasure. Could you please comment on this opinion?


Thank you. This is true, we are accumulating foreign currency and gold reserves to have a safety cushion. As any other country, Russia does need a safety cushion. The history of the crisis periods in Russia evidences that such a safety cushion can considerably attenuate adverse consequences for both the economy and the living standard. Russia’s economy still remains highly dependent on commodity exports, and prices and demand for commodities are generally rather volatile. Therefore, it is critical to reduce the dependence of the living standard and the economy on the external environment. And such a safety cushion helps achieve this goal.

Economic development should certainly be supported by funds. We are perfectly aware of this. But we do have funds in the economy. For instance, look at the amounts businesses hold in their payment accounts and deposits and how their profit increases – they do have their own resources to invest in the economy and the production. The investment climate also matters – it encourages business players to invest funds. And of course, government expenditure will also support economic growth, provided that spending is in line with the schedule.

QUESTION from Russia-24 TV channel:

Ms Nabiullina, I have two questions. Question one. A few days ago, it became known that the Bank of Russia had been collecting credit institutions’ statistics on fraudulent actions with electronic signatures. Have you obtained any data already? Are you collecting such statistics? And how are you going to use this information, what findings do you intend to get, and what decisions are you planning to make?

And question two. Yesterday, Oleg Deripaska made a public statement. In his opinion, some powers and functions of the Bank of Russia should be transferred to the Federal Antimonopoly Service. Could you please comment on his viewpoint? Thank you.


Regarding fraudulent actions with electronic signatures. As remote services and digital technologies evolve, the characteristics of fraudulent operations also change. Therefore, we are continuously monitoring what becomes widespread and dangerous in order to protect people against fraudsters. And we also carry out monitoring of frauds with electronic signatures. As of now, we do not have any consolidated data. If we gather them, we will certainly provide information on the qualitative results of this monitoring.

As for the Bank of Russia, its powers are stipulated by the federal law. We work in compliance with this law.

QUESTION from Reuters:

I would like to get some clarifications regarding the key rate. As you have said, you will consider its reduction at one of the next meetings. Is it possible that you will cut the rate both in October and December? This is my first question.

And question two, please. Don’t you think that when you announce that the key rate has reached a neutral level, this may cause a sell-off in the OFZ market because investors will start selling federal government bonds? Thank you.


As regards our key rate decision. The Bank of Russia will assess its reasonableness. Our decisions will depend on incoming information. As I have said, there is a great deal of uncertainty. And currently, we cannot say in advance which decisions will be made. Thus, we are going to use the existing model: we will explore the reasonableness [the need to cut the key rate] at one of our next meetings, that is at one of the three next meetings.

As for the neutral level. As I have said, the key rate is already in the neutral range, but it is broad. I am afraid that we will never be able to assert that a particular key rate is neutral at a given moment of time. It is a range, and not a point. We will not be able to specify an exact point. The key rate is somewhere within this range. It is critical for us that the level of the key rate ensures 4% inflation based on our forecast. Therefore, I will repeat once again that this neutral level is a kind of conventionality.

As you know, other central banks also discuss this issue because the key rate level is rather hard to measure and assuredly say that this is the right one.

QUESTION from RIA Novosti:

Last week, the Bank of Russia announced that the overall level of household debt burden had reached its 2014 peak – 10.4%. In this regard, does the Bank of Russia consider it necessary to implement any additional limitations because, as was explained by the Bank of Russia, this growth primarily resulted from consumer loans? Also in light of the fact that you forecast a 10% increase in consumer lending.


The growth rate of consumer lending is really high. And we have always stressed this. I will repeat once again that there is currently no risk for financial stability. And it would be better not to threaten anybody with any bubbles. Yet, the growth rate is definitely rather high. We have been addressing this issue for quite a long time already because high growth rates might create risks in future. We started to implement macroprudential measures back in 2018. The decision to introduce the debt burden ratio since 1 October – a new regulatory tool for the Russian banking system – was announced more than a year ago, even before all the discussions that took place this year, with the understanding that consumer lending, as I have already said, may not ultimately be the key driver of economic growth.

The growth rate of consumer lending is definitely rather high. But the main reason behind the debt burden increase is income stagnation. What is actually a debt burden? This is a numerator and a denominator. Look at the numerator – how consumer lending has increased. Let’s analyse the figures beginning from 1 January 2015 when this issue emerged. In real terms, the overall amount of [unsecured] consumer loans grew by approximately 0.4–0.5% [as of 01.08.2019]. The problem is that income declined during this period. This is why the debt burden ratio has risen. And of course, household income growth is essential to prevent an increase in debt burden on the population.

It is true, that today low-income households unfortunately have to take out more loans to maintain their consumption level. And this may be dangerous for them. This is the reason why it is important to introduce the debt burden ratio for them. It will help them avoid an even greater debt bondage as they strive to maintain the consumption level.

Therefore, the [debt burden] ratio will be implemented. This is a sufficiently rigid tool as compared to the limitations we applied before. By the way, the four increases in the ratio [risk ratio based on total cost of credit] have also had an effect. Consumer lending growth has been gradually decelerating month-on-month. It does not continue to speed up. And this is the result of the previously taken measures. Yet, we expect that the debt burden ratio will be more efficient.

We will monitor what effect this ratio has. As of now, we do not see any need to implement any extra measures. We will introduce them if needed. Next week, the Bank of Russia is going to publish a report for public discussion. It will cover macroprudential measures in consumer lending and consolidate foreign countries’ experience. We are doing this because there are also other tools, besides those we use. And we want to discuss them. But if we get ready to apply them with account of the discussion with market participants, it will be necessary to introduce amendments to laws so that we can acquire a more comprehensive range of tools.

That said, the first thing we should do is to assess the effect of the debt burden ratio after its implementation by banks.

Thank you.