• 12 Neglinnaya Street, Moscow, 107016 Russia
  • 8 800 300-30-00
  • www.cbr.ru
What do you want to find?

Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting 19 March 2021

19 March 2021

Today, we made a decision to raise the key rate by 25 bp to 4.50% per annum.

The economy is reviving more steadily now, and both domestic and external demand is growing. However, inflationary pressure has intensified, and proinflationary risks have increased. In these conditions, we are beginning to return to neutral monetary policy. As a result, this will bring back annual inflation to our target close to 4% in the first half of 2022.

I would like to dwell on the factors behind the decision we have made today.

First. The steady components of annual inflation and current price growth in annualised terms are considerably above 4%. This is the evidence of elevated inflationary pressure across a wide range of products.

Such acceleration of price growth has been driven by both demand- and supply-side factors.

Last year, consumer demand had a disinflationary impact, while now it is becoming proinflationary as demand is expanding. The epidemic situation in Russia is improving, vaccination is now under way, and authorities are lifting restrictions. People are gradually returning to their normal life, making purchases they postponed before. This is evident from an increase in the sales of household appliances, electronics and home improvement goods and the rise in the demand for leisure and travels. Moreover, the funds that were earlier spent on outbound tourism have been recently used predominantly inside Russia.

Demand is bouncing back steadily, while the recovery of supply will require more time. It is impossible to restore production and supply chains instantly, especially given the restrictions still in place locally. Companies will need time to adjust their business plans to a faster recovery of demand, find additional suppliers, employ staff, and expand output. A very good example is domestic tourism. The shift in the overall tourist flow has happened quite fast and unexpectedly. The tourism segment did not have sufficient infrastructure for that, which has affected pricing.

One-off factors have exacerbated inflation rates and expectations that are elevated even without this influence. Food price growth sped up the most. The measures implemented by the Government have helped smooth out these price rises partially.

The elevated growth rate of prices for basic goods is especially important for consumers and considerably increases inflation expectations. As a result, the steady component of price growth may rise for a prolonged time. We can see that households’ inflation expectations are currently above pre-pandemic levels, although they have lowered as compared to the peak recorded in December. It is necessary to prevent further inflation acceleration. Therefore, inflation expectations need to be reduced as soon as possible.

Overall, the balance of factors has shifted towards proinflationary ones.

Second. Economic growth exceeds expectations and is becoming steadier. This is driven by the rebound of both domestic and external demand. External demand promotes Russian exports, specifically of metals, chemicals, and food. High-frequency indicators suggest that economic activity and employment are growing.

Consumer demand has been recovering steadily since the end of 2020. The demand for durable goods has been rising. As more households are improving housing conditions, this is boosting the demand for accompanying goods, including tools, construction materials, furniture, and household appliances. The demand for cars also remains high. All this supports output in respective industries. Many of them have already restored their output or even increased it above pre-pandemic levels, including in the manufacture of furniture and household appliances, clothing and fabrics, fertilisers, paints and varnishes, agricultural machinery, and electric equipment.

The service sector hardest hit by the pandemic continues to recover, which is evidenced by high-frequency indicators proving that business activity in services has improved considerably.

We expect further economic growth. The upward trend will be supported by vaccination and the extension of a part of preferential government programmes. Fiscal policy will remain expansionary throughout 2021 as compared to the parameters provided for by the fiscal rule.

Third. Monetary conditions remain accommodative. Moreover, yields on federal government bonds have risen since the Board of Directors’ previous meeting on the key rate. The increase in short-term yields was driven by the expectations that the Bank of Russia will shift towards neutral monetary policy earlier and faster. Medium- and long-term yields on federal government bonds were primarily influenced by rising interest rates in global financial markets. Nonetheless, nominal interest rates on loans and deposits have not changed significantly.

Monetary conditions will remain accommodative until the key rate returns into the neutral range (which is still from 5% to 6% according to our estimate). This will continue to support lending, the annual growth rate of which is currently close to its several-year high.

Monetary conditions are considerably impacted by the preferential lending programmes implemented by the Government. They are easing monetary conditions even more, and the extent of this influence depends on the scale of programmes, the amounts of subsidies, and the maturities of credit instruments they cover. When their scale is significant, this implies that the Central Bank has to maintain tighter conditions for everyone. This is needed for average monetary conditions across the economy to ensure the level of aggregate demand corresponding to the goal of achieving the inflation target. This is the reason why we believe it essential to terminate comprehensive anti-crisis programmes supporting lending after the country overcomes the acute phase of the economic crisis. We also insist that any permanent programmes should only be limited and targeted. Otherwise, they will be paid for not only by the budget, but also by the major part of the economy which will face higher interest rates.

I will now speak on the factors that may significantly impact inflation on the longer run. These are predominantly proinflationary ones.

Speaking of external demand factors, accommodative monetary policies and fiscal stimuli in advanced economies may encourage a faster recovery of the global economy than expected today. On the one hand, the demand for Russian exports will expand, which will bring additional revenues to exporters and have an upward impact on domestic demand. On the other hand, the growth of global prices in commodity markets may speed up. Consequently, this may involve the risk that this growth will translate into the trends of respective domestic prices. We are already observing this in the food segment.

As regards domestic demand, consumption may be expanding even faster, including in services, exceeding the recovery pace of output.

We can also identify proinflationary supply-side risks that are primarily caused by increased input costs. Moreover, a range of industries are already experiencing staff shortages, which may hinder the expansion of output.

As before, the further development of the epidemic situation worldwide is highly uncertain. A range of countries are tightening restrictions again and partially suspending economic activity. Geopolitical risks remain elevated as well, and they may affect yield trends and inflation and exchange rate expectations.

The Bank of Russia will also factor in how our medium-term forecast may be influenced by possible government decisions on investing the National Wealth Fund’s resources.

Disinflationary factors have weakened, but still exist. First of all, it is yet unclear how fast countries will be reopening boundaries after the pandemic recedes. In a situation where boundaries are fully reopened, households may be realising the pent-up demand for foreign travels very fast. As a result, demand will be transferred to external markets. This will weaken inflationary pressure. I would like to remind you that before the outbreak of the pandemic expenses for outbound tourism approximated 2 trillion rubles a year. However, if people remain cautious about foreign travels, a substantial portion of households’ funds will remain inside Russia. It is now difficult to say which of the two options will become the reality. Furthermore, the reopening of boundaries will restore labour migrant flows and logistics chains, which will decrease inflationary pressure caused by companies’ input costs.

In conclusion, I would like to comment on the shift towards neutral monetary policy.

We have seen that the money market and the bond market have already included a potential key rate increase into asset prices. Nonetheless, a large number of experts and analysts assumed that the Bank of Russia would begin to raise the key rate slightly later. However, the data available prove that we need to start returning to neutral monetary policy already now. Time really matters: if we delay a key rate increase, inflation may go up and inflation expectations will not lower. Inflation will deviate from the target even more, and consequently, we will need to increase the key rate more significantly in the future.

Rephrasing a popular expression, I would say that we have put the right comma in the phrase ‘to preserve impossible to raise’.

Thank you very much for your attention.

Q&A for the Media

QUESTION from Reuters:

Did the Board meeting consider the option of increasing the key rate by more than 25 basis points? Is policy normalisation set to end until the end of 2021?


We did consider a key rate increase of more than 25 basis points, among other options. There were three options on the table: unchanged, increased by 25, and increased by 50 bp. We looked into the fors and againsts of each option. Let me explain why we think that the best step is 25 bp. We believe that changes to our monetary policy should be smoother [than would be in the case for a 50 bp increase].

As regards the potential completion of monetary policy normalisation before the end of this year, this will largely depend on how things play out. There are still many uncertainties here, and I have spoken about that, so we will be guided by incoming data and may update the forecast as we go. Given monetary policy lags, the way we will review our forecast is essential. We are leaving open the option that a set of conditions may emerge to propel us to do so. Yet, that does not necessarily mean that we will have to do it this year. This is certainly not predetermined.

QUESTION from Interfax:

Good afternoon. This is my first question. You have left the inflation forecast out in the press release and note that inflation is set to return to target in the first half — that is, we are seeing a time shift. By how much is inflation, in your view, set to exceed the previous forecast of 3.7–4.2%? Which rate are you expecting at the peak of inflation? Is 5.8 the peak, or could inflation go higher?

Question two. You said that you would publish the key rate path in April, and that this path is most likely to be a certain range. What will this range be like? How wide could it be — have you a view on that?

And my third, very important question, please. This is about communication. To the last, the markets expected this meeting to maintain the rate. It was only in the run-up to the meeting that some experts and market players revised their forecasts upwards, amid rumours. Essentially, we reran the 2018 moment where many market players, as you remember, spoke out that your communication was not quite correct: at the time, no change was expected, but you raised the rate.

Why did you stop short of officially correcting market expectations given the chance you had before the quiet period? Were you comfortable with such expectations, in spite of you having made the increase decision? Shortly before the meeting, some unofficial information gets around. What do you think about this? Thank you.


Thank you. Three questions then. I will try and answer each. On the forecast for inflation, it is true: we revised it. We now expect inflation to return to the 4% target in the first half of 2022.

As for the year-end inflation forecast, we are publishing it in April. We are going to update the whole forecast at our policy meeting in April. However, I can tell you at this point that we estimate year-end inflation to come in lower than current values. At the same time, its range is likely to be above our 4% target.

As for the peak. Our current estimates show that we are somewhere close to peak values. Our assumptions are that inflation will start declining gradually in April, and annualised inflation will also gradually decline, primarily driven by the base effect.

As for publishing the key rate path. Please wait a bit, until the next meeting. We will release this publication in April. This will in any case be a graphical view of the range.

As regards market expectations, we can see that the market, the financial market in the first place, did not rule out and even expected a potential rise decision from this meeting. There are expectations for rate increases to occur before the end of the year. Many analysts — not all, but many — thought otherwise. We used our publications and interviews in the run-up to the quiet period to emphasise the considerable rise in the stable components of inflation.

Yet the decision was in no way predetermined before the Board meeting. It is the Board of Directors that makes the decision. We looked into how the situation is developing and the factors to drive future economic trends. It is in the course of the Board meeting that the decision was made.

Let me stress yet again: even based on the response of the OFZ curve and the exchange rate, our decision was overall in line with market expectations. It is essential that we make a correct and well-timed decision. This decision — let me repeat — was not predetermined, it was indeed discussed in the course of the meeting. As I have said, we looked into three options including the option of keeping the rate unchanged.

QUESTION from RIA Novosti:

The Bank of Russia has today raised the key rate and signalled that it holds open the option of raising the key rate at its forthcoming meetings. Don’t you at the Central Bank expect that this decision will slow down lending growth and economic recovery?


No, we do not. Our policy and monetary conditions are in any case set to remain soft, taking into account the lags associated with monetary policy, until the moment we have entered the neutral rate range. By the way, once we have entered the neutral rate range, the effect of our decisions will still come with a lag. And we do not expect that this factor will drive a slowdown in lending growth or economic recovery. We can see that lending growth rates are currently in sustainable positive territory, and that economic recovery is going ahead.

QUESTION from RIA Novosti:

Based on expectations for an accelerated recovery of the economic recovery, what growth rates are the Russian economy expected to chalk up for 2021? When is a return to pre-crisis levels expected?


The GDP forecast will also be updated in April. We expect growth to continue. We also expect economic growth to return to a pre-crisis level before the end of this year.

QUESTION from Bloomberg:

Will you please share your view of future foreign currency purchases related to the fiscal rule, that is, will they change because of the Finance Ministry’s plans to start investing National Wealth Fund (NWF) money? In practice, the Central Bank normally offsets these transactions. By what amount might [foreign currency] purchases be reduced this year?


The Finance Ministry will buy foreign currency in accordance with the fiscal rule. We are indeed planning to offset NWF investments; yet it would be premature to give you more detail at this time. The decision has yet to be made. The are many uncertainties for us here. We will act on the basis of the Government’s decisions.

QUESTION from Rossiyskaya Gazeta:

The current surge in inflation in Russia is largely non-monetary. Is the Bank of Russia planning to create tools to reduce the volatility of such inflation to deliver more price stability in the future? What tools could these be?

Furthermore, to counter the seasonality of inflation, the Bank of Russia has previously prioritised the efforts to develop vegetable storehouses. What is status of these efforts? Why were they put on a back burner?


True, it is an ongoing process: we always watch how non-monetary factors develop. For the purposes of discussion, non-monetary factors are those that are on the supply side, and monetary factors are those that are on the demand side. It is demand-side factors that the Bank of Russia can influence above all. The Bank of Russia has no tools to influence non-monetary inflation drivers, which include, for example, tax policy, competition policy, and industrial policy.

And now we can see that in addition to one-off factors, including non-monetary ones, the increase in inflation came on the back of the sustainable monetary component, which is why we have made this decision.

As for vegetable storehouses. Indeed, some time ago we stressed the importance of these efforts, although the availability of vegetable storehouses and storage infrastructure problems are non-monetary in nature. However, their shortage has been behind deep seasonal fluctuations in fruit and vegetable prices, building increased inflation expectations, among other things. It was through the growth of inflationary expectations that this influenced demand itself. It was therefore very important for us to prevent this seasonal volatility due to a lack of vegetable storehouses.

The Ministry of Agriculture paid great attention to the development of vegetable storehouses. Government support was provided. According to the Ministry of Agriculture and to the best of my knowledge, we no longer have a shortage of them. The problem here is not just the number, but quality of the storehouses. Nation-wide, some local problems may occur, but they are being solved.

Therefore, from the perspective of the storage problem as a driver of volatility, of seasonal volatility affecting price trends, this problem is indeed no longer relevant. The problems we have seen this year are mainly related not to the storage system, but to production and trends in global markets.

QUESTION from Kommersant:

What are Bank of Russia calculations for the saving ratio in 2021–2022? To what degree is the Bank of Russia’s decision on the key rate set to affect the saving ratio?


We can see that the saving ratio went up in 2020. We took this into account. We believe the saving ratio will gradually drop in the course of 2021 and move closer to the pre-pandemic level of 2019. This is something we consider when making a key rate decision, that is, as things look up, people tend to become demotivated in adhering to their prudent saving behaviour. People tend to switch to consumption, which will affect inflation trends, among other things.

Yet, a lot will depend on what consumer preferences will be like. Consumer preferences have changed in the COVID environment, I mean, changes in saving preferences, consumption preferences and the consumption structure. This requires ongoing monitoring.

QUESTION from Forbes:

This is my question. Finance Minister Siluanov recently said that if further sanctions were imposed on Russian public debt, he would rely on domestic investors to cover the needs for budget deficit financing; in this context, the Bank of Russia stands to support Russian banks with liquidity to operate in the domestic loan bond market. Is the Central Bank ready to provide such liquidity? What is your assessment for the chances of US sanctions on public debt?

And my second question, if I may. The Government has recently introduced ongoing price monitoring and even identified those responsible for it. Should prices grow, those responsible will come up with support measures. There is no mention of the Central Bank in this process. Did they discuss this monitoring and this price control scheme with you? What is your overall view of these measures?


As regards liquidity provision, we are ready. We have all the tools to provide liquidity to the banking sector, irrespective of where the banking sector may want to channel this liquidity. In pandemic conditions, there were structural changes in liquidity, including those related to fiscal operations. We saw these swings [in banking sector liquidity], and we saw the demand for our long-term liquidity facilities. But as the budget system began to finance its own expenses after the period of borrowing in the market at outrunning rates, and this propelled banks’ interest in the Central Bank’s liquidity lines. So, after budget spending renewed, this money returned to us.

These tools should remain in place, we believe. They are appropriate, and no special arrangements are needed. We have no plans to introduce targeted liquidity provision. The liquidity we provide is for general purposes. We will therefore continue to offer both monthly and annual repo facilities. Yet, I want to stress that there is no shortage of liquidity in the market. Banks are now operating with a liquidity surplus. The liquidity surplus is about 1.8 trillion rubles.

On the subject of US sanctions on public debt, the matter is being discussed. We have had multiple discussions on the subject. Should these sanctions emerge, short-term liquidity fluctuations may occur. But the overall level of our public debt is fairly low, one of the lowest by global standards. Plus, the fiscal policy being conducted ensures that public debt remains manageable, and this prevents the occurrence of systemic risks to financial stability. In any case, we have all the tools to cope with volatility in the financial market.

As regards ongoing price monitoring, admittedly, ongoing price monitoring is a very useful thing, an important thing. We are watching prices, and as I am aware, so is the Government. Price breakdowns by sector and product are essential. But there are certainly some specific points, when each agency may come up with their own regulation initiatives, based on results of price monitoring in its field. It is good if they come up with economic regulation, and not administrative regulation. In my view, a certain clarification may be needed here. Should we unexpectedly pass any economic regulation measures with implications for business projects, this could become a driver of uncertainty. A particular degree of certainty is essential here, so we understand that new economic regulation measures are not dramatically affecting the economics of ongoing business projects. Predictability for business operations is certainly a key principle.

Yet, in a scenario of significant and protracted price fluctuations, that is, price increases, it is important that we have a permanent instrument to address this, an instrument that business understands. This would enable us to smooth volatility in the markets and would certainly be useful for consumers who clearly have every reason to be displeased about this price growth.

QUESTION from Russia 24 TV channel:

The Federal Reserve has made clear that their rate will remain low throughout 2024. This stance of the Fed is a sign of a cautious approach to the post-COVID economic recovery. What is the Bank of Russia’s overall view of the US central bank actions?


The package of these measures is truly large-scale. The passing of the new economic relief package in the US, as the US economy is showing a speedy recovery, has pushed estimates of long-term inflation risks higher in financial markets, entailing an increase in yields at the long end of the US public debt curve. At the same time, growing profitability against the background of rather large numbers of borrowers overloaded with debt can create financial stability risks. Regulators are confronted with the choice between inflation risks or financial stability risks. To us, this may mean that we are going to enter a period when capital flows to emerging markets will be highly volatile. We have always highlighted in our reviews that the factor of capital outflows and potential market volatility are our market vulnerabilities. We are therefore watching the situation and always keep a whole set of tools ready to prevent the emergence of possible risks related to this volatility.

QUESTION from IA MordovMedia:

Annual inflation in Russia has increased to 5.67%. This is higher than Bank of Russia estimates. What are the primary drivers of this growth in inflation?       


This inflation growth is determined by a set of both demand and supply-side factors. Let me stress again, we can see that demand is showing a fairly strong recovery, which is evidenced by a slew of macroeconomic indicators. Supply is also recovering, albeit slower. This is explained by one-off adverse factors and the need for production chains to get restored. This is also explained by suboptimal competition in individual markets. And we can see demand is well into a sustainable recovery. This made it easier for manufacturers, suppliers and retailers to pass previously increased costs on to prices. Some temporary factors on the supply side also contributed significantly to the inflation increase you have talked about. These include a decline in crops, increased export profitability, and deteriorated epizootic conditions. This was the case late last year, when prices for sugar and sunflower oil grew sharply. Currently these are meat products, eggs, and potatoes. What is very important is that, although there is a really strong influence of one-off factors, the dominant force behind the increase of current inflation is a growing input of stable components of inflation, which is why we have decided today to raise the rate.

QUESTION from Komsomolskaya Pravda:

Accelerated inflation is mentioned as the key reason for the increase in the key rate. What other measures beyond this instrument are needed? The Government has opted for the imposition of bans on price increases for socially important goods. What do you think about this instrument?


My opinion is, administrative bans should only be reserved as a last resort and enacted only for a short-term period. This measure may bring about a short-term deterrent effect on prices. Yet, if applied for a lengthy period of time, such bans will bring harmful consequences including higher growth in inflationary pressures. This is why permanent and predictable market mechanisms are important to deal with the markets for products with a high probability of recurrent volatility, that is, when prices go up and down, which is especially the case of food products.

Clearly, my opinion is that our approach should be limited to a market response, not administrative, measures.


My question is about preferential mortgage loans. You have mentioned that this programme could be rolled over in 24 regions. Was this list was discussed with the Government, in particular with the Ministry of Construction? Can this list be shortened? If this programme is indeed extended, for how long?


We have communicated our position to the Government, and will hopefully have a chance to discuss it. Our proposal includes criteria, subject to discussion, and the set of regions. Our position is that if we extend the programme, we can only extend it through the end of the year. If extended until the year end, the programme should only apply to a limited number of regions. The programme needs to be rolled over primarily in the regions where preferential mortgage loans did not have negative implications for housing affordability, where no accelerated growth occurred in home prices and no signs of a mortgage bubble emerged. This is why the criteria include the rates of growth in housing prices in regions. We could also look into a supply of housing in the region, as one of the criteria. These criteria are subject to discussion, as well as the list of regions. We are ready for this discussion.

QUESTION from RBC-Vologda:

The Vologda Region is not on the list of regions expected to receive extensions of preferential mortgage programmes. Experts expect the rollback of the programme to cause a property market crash, a sharp drop in demand for properties and a sharp spike in prices. This may cause some developers to exit the market, and the number of developers has already declined considerably since the introduction of escrow accounts. Had relevant calculations been performed before the decision was made? What is the Bank of Russia forecast for most regions outside the programme?


First. The decision on the future of preferential mortgage programme has yet to be made. The programme is under discussion. We have submitted our proposals and the list of regions that meet the criteria we came up with. But we are ready to discuss the criteria. Let me say it again: we should clearly define the principles governing the extension of this programme. Undoubtedly, the key purpose of the preferential mortgage programme is to help people buy a home. But if this programme translates just into price growth, housing becomes less affordable even with low interest on mortgages. Surely, this is something to consider.

Now, on the Vologda Region, let me check right away. Housing prices in the region slightly exceeded average growth in the fourth quarter of 2020 against the same quarter of 2019. The country-wide average growth of housing prices in the primary market totalled 12%. You will agree that this is a lot more than the rate of inflation: we can see a double-digit rate of price growth. It is too much. In the Vologda Region, prices went up 12.4%. Therefore, this subject still needs to be discussed.

In any case, we believe that even once the large-scale anti-crisis mortgage support programmes are over, there should be permanent targeted programmes, primarily focused on certain categories of people and certain regions. Perhaps not even on regions, but towns and cities where developers have no commercial interest in housing construction. You have a point here. In some regions, the margin of construction projects is not attractive to developers. From a market-based policy perspective, these regions need Government support to enable the development of the housing market so that people have the opportunity to buy a home. Therefore, there should be targeted programmes, which are, in our opinion, to be built subject to regional and even urban specifics, to sustain overall affordability of housing for our citizens.

QUESTION from Izvestia:

Your press release mentions that demand is up on the back of the pass-through effect, with spending coming to domestic travel from overseas tourism. Is there an estimate, in monetary terms, of how much money was spent domestically?


No precise estimates are available. We are actually trying to figure out this number, based on several measurements. Certainly, some of this money translated into savings, some was spent domestically including on domestic tourism. But not only on domestic tourism. These funds, which may be considered to have been saved, could have been spent on purchases including on purchases of durable goods. Of course, it is complicated to estimate the amount of money that people who normally travel abroad spent domestically last year. Still, the key figure here is the two trillion rubles that were unspent overseas. This money either became household savings or were spent domestically and supported domestic demand.

QUESTION from VTimes:

What fiscal policy measures could reduce the pace of an increase in the key rate? Are such discussions ongoing with the Finance Ministry? For example, reductions in the borrowing plan, budget deficit, and so on. Given that 2021 is a parliamentary election year, what effect from the budget side does the economic development scenario in 2021 factor in, that is, is the scenario pro-inflationary, neutral, or disinflationary?


Our baseline scenario factors include the assumptions the Finance Ministry has presented in the Guidelines for Fiscal Policy. Certainly, as more information comes in as regards any changes in budget parameters, we will take this information into account. Yes, I am aware of information suggesting the borrowing plan could be reduced. However, our understanding is that this will not change the budget deficit: it will just be funded not out of borrowed funds but out of a surplus in oil and gas revenues for the past year, that is, their overrun against the plan. From this perspective, that is, if the deficit is unchanged, the impact on inflation is neutral. We should therefore look at all these measures. At this point, we are guided by budget parameters. We rely on the fiscal rule as a cornerstone of fiscal policy, and we are coming back to fiscal rule in 2022, which was never called into question.


How much of inflation acceleration is behind the key rate cut in 2020? Can this effect be quantified? How much does the key rate affect inflation in current conditions? Are there more meaningful factors?


Ultimately, the key rate does affect inflation. It is through changes in the key rate, changes in a monetary policy stance that we influence inflation, and it is the key rate tool that enables us to keep inflation near the target in the medium term. There is a variety of factors, including one-time ones, that can influence current inflation. We are setting monetary policy to deliver on inflation targets. We can now see that one-off factors are contributing more to the deviation of current inflation from 4% than any other ones.

QUESTION from Bloomberg:

Your statement mentions that available data points to the need for a rate increase now so as to avoid a higher increase later, and that a 50 bp increase was also considered today.

Is this to say that you are planning to move major steps in monetary policy normalisation on to the second quarter?


Everything will depend on how the situation develops. Both the paces and the timeframe for the transition to neutral monetary policy will depend on how things play out and how changes in the situation may affect our forecast. There is hardly anything else that I could say here: there are multiple competing trends and factors. True, we have signalled that we hold open the option of increasing the rate at forthcoming meetings. But, as I have mentioned, this is not preordained. Everything will depend on the situation. Let me stress yet again, the decision to launch the transition to neutral monetary is driven by current needs.

QUESTION from Interfax:

Good afternoon. I have several questions. Question one. When does the Central Bank plan to return to the discussion of differentiated systemic importance capital buffers? The move was postponed due to the pandemic, but the Central Bank put it back on the 2021 agenda.

My other question is about bank resolution. At the time, when Otkritie was put under resolution, its subordinated bond was written off. Foreign investors who held the bond filed a suit against this write-off in January 2021. Could this, according to Bank of Russia lawyers, stand in the way of the sale of Otkritie, scheduled for the next year?

And another question is about regulatory reserves for foreign currency deposits. Statistics show that cash worth some 9 billion was withdrawn from foreign currency accounts last year, half of which was for purchases of non-cash currency and subsequent cash withdrawals. What is your view of this trend towards the predominance of foreign currency in savings? Perhaps it would make sense to reduce regulatory reserves for foreign currency deposits to encourage people to keep foreign currency in banks, not under their mattresses?


With regard to differentiated reserve rates for systemically significant credit institutions, we have indeed postponed this measure in 2021 due to the pandemic. We will discuss this subject this year, including the timing and scope of this differentiation to be introduced.

With regard to the write-off of the subordinated bond related to the resolution of Otkritie, we believe that the bond was written off in accordance with the legislation. The court will make a decision, and we would like to reserve our assessments at this point. And, in our opinion, this will not interfere with preparations for the sale of Otkritie. We confirm our plans, our intentions, to start this sale in 2022.

With respect to foreign currency accounts and the predominance of foreign currency, the subject of regulatory reserves rates is not under discussion now. Countering the predominance of foreign currency is our priority. We can indeed see that the pandemic has caused changes to preferences, but mostly in savings, consumption and forms of saving due to the key rate reduction. Here I also mean an entry into the stock market; cash savings have become a global trend in the pandemic environment. We will look into how the situation develops. Households have the opportunity to save in rubles. Our positive rates encourage this.

QUESTION from Oblastnaya Gazeta, Yekaterinburg:

Many financial and credit institutions extend loans to citizens, despite their already high debt burden and poor credit history. This leads to the accumulation of excessive debt, may potentially cause bankruptcy and foreclosures. What measures can and should be taken to ensure that banks are unwilling to issue loans to those already burdened with loans and debts?


This really is a burning issue. We are taking measures to discourage banks from issuing loans to those already burdened with loans and debts. We have introduced risk-based capital buffers for such loans. But, of course, when banks enjoy solid capital reserves, they can afford these capital buffers and carry on issuing such loans.

We have looked into global practice. Global practice suggests that other instruments are available beyond the additional risk-based capital buffers we apply, namely, quantitative restrictions. This means that some countries have direct bans on lending to people excessively burdened with debts; or banks are given quotas on such loans. Our legislation does not empower us to do this. We are now in discussions with the Government on this subject, aiming to receive this right and use it in practice.


I have two questions.

The first one is short. Does the Central Bank plan a review of any macroeconomic forecast parameters in April, in addition to those announced?

And the second question, please. The recent report on the regulation of floating interest rates mentions the term ‘qualified borrower’. Do you think the market needs this concept now? What preferences would qualified borrowers receive then?


We are due to review the overall macro forecast in April. The various trends including inflation changes suggest the potential need for a review and update of many forecast parameters. Given that all the indicators are interconnected, we will unveil the updated forecast in April.

On the subject of floating interest rates and the potential introduction of the ‘qualified borrower’ category, similar to ‘qualified investors’. This is up for discussion. We cannot say we much want this category introduced into practice. I personally have doubts. What we should do is, among other things, look into the qualified/non-qualified investor distinction considering that it is enabled by testing. We should also see how it will show itself considering tests are made by institutions that are interested in sales of products to investors. We may certainly have some difficulties, too, should we go ahead with the qualified borrower category. I therefore do not view this as a key instrument or a key focus of regulation and risk management related to floating rates. But we let us see what experts and market players will say. Discussions are now ongoing.

QUESTION (Fomag.ru):

A question on the Government’s measures to regulate prices: further to what you have outlined, do you think the current effect of these measures could be quantified? Can we see the impact of these measures, or perhaps there is no overall effect of these measures on inflation?


These measures really matter. Their impact depends on the share of products with regulated prices in the consumer basket. We estimate the effect of these measures at 0.1–0.2 pp. We should certainly remember that people are sensitive to products that showed considerable price growth, and these products create increased inflation expectations.

We see there was a rise in inflation expectations and a slight decline thereafter, however they are at a relatively high level.

QUESTION from Rossiyskaya Gazeta, Samara:

The acceleration of inflation in recent months in excess of 5% is, according to many experts, mainly due to the weakening of the ruble exchange rate.

Does the Central Bank envisage any measures to strengthen the ruble, apart from a key rate reduction? And what is the Bank of Russia’s plan to return inflation to the 4% target, considering the key rate cannot be reduced indefinitely?


Well, we have raised, not reduced, the key rate today. The ruble exchange rate does influence inflation. Importantly, this influence is currently a lot weaker than a few years ago. Our calculations suggest that a 10% weakening of the exchange rate, which is a significant weakening, can translate into a 0.5–0.6 pp increase in annual inflation. It used to be twice as much.

The weakening of the exchange rate that occurred last year is estimated to have contributed 1 pp to inflation growth. In our view, prices have almost completely factored in the impact of a weaker exchange rate together with its pass-through to inflation, so inflation movements are primarily influenced by other factors. These include a dynamic recovery in external and domestic demand, as well as negative supply-side factors of a temporary nature.

As regards the exchange rate itself, a steadier exchange rate is something that many are interested in, I mean, households and businesses. A steady exchange rate of the ruble gains support from the fiscal rule. We therefore believe it is essential that fiscal rule principles be fully reinstated in 2022. On the subject of actual low inflation, when inflation is steadily low, the exchange rate could admittedly fluctuate, propelled by external factors, but it could still remain within a fairly steady range over the course of several years. A certain short-lived effect of inflation reduction could be delivered through various tools to support the exchange rate in the face of its objective weakening — through the attempts to artificially support a strong rate — but in the long term these policies can cause a much stronger weakening of the rate and stronger inflationary pressures.

Therefore, in our opinion, targeting inflation through monetary policy, using the key rate and a floating exchange rate, is what brings about steadily low inflation and ultimately, together with the fiscal rule, ensures a steadier exchange rate.

QUESTION from Rossiyskaya Gazeta:

How will Russian financial market stability be affected by the new US relief package worth almost $2 trillion, accelerated buyouts of ECB assets and the US President’s statement? What is, in your opinion, the main threat to the stability of the Russian financial market?


I think I have outlined our view of what implications the new US relief package will carry. As the US economy is well into a dynamic recovery, expectations in financial markets are growing for increased inflationary pressures. This has translated into, among other things, higher treasury yields at the long end. We cannot rule out the risks of fluctuations in financial markets, in capital outflows and in inflows to emerging economies. We will have to build all of this into our considerations.

What constitutes the main threat to the stability of the Russian financial market? We release regular reviews of financial market risks and conduct analysis of external and domestic factors, with the key objective of monitoring potential risks. We have the whole toolset to take action. We cannot see any expressed risks at the moment.

QUESTION from VTimes:

Since the beginning of the year, the OFZ curve has considerably increased. Is this a sign of actual tightening in monetary policy, translated into lending rates in the economy, which could slow down the pace of monetary policy normalisation the Bank of Russia is conducting?


Yes, indeed, the OFZ curve is up, at the short, medium-term and long-term end of the market. The nature of such growth varies: for the short-term end, this is a change in expectations for the key rate and the return to neutral monetary policy, and for longer-term OFZs, this is primarily the increase in global rates. We take this into account in order to assess monetary conditions and the expected impact. This is one of the factors for us to take into account when determining the optimum path of monetary policy.

I understand that was the last question. Thank you for your time.