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Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting on 10 September 2021

10 September 2021

Good afternoon,

We have made the decision to raise the key rate by 25 basis points to 6.75% per annum and we hold open the prospect of further rises at the upcoming meetings.

Our today’s decision is based on the following.

First, the economy is returning to a balanced growth path. Although the pandemic persists, economic activity bounced back to its pre-pandemic levels already in the second quarter of 2021. Moreover, excluding the oil sector where production is still limited due to the OPEC+ agreement, output in the economy has not only recovered, but returned to the trend, to the growth path observed before the outbreak of the pandemic. Employment has restored almost completely. According to July data, the unemployment rate is close to its record lows. In other words, a further development of the economy and output growth will predominantly depend on the growth rate of labour productivity. According to the Bank of Russia’s estimate, taking into account the structural measures implemented by the Government, the pace of such balanced, or potential GDP growth, which is the same, will equal from 2% to 3% annually.

Of course, the development of the economy is uneven. The pandemic caused significant changes in the work and everyday life of both households and businesses. As the economy continues to adjust to these changes, the situation is still uneven across different sectors. In addition to the above-mentioned oil industry, passenger transportation and international travel still remain below pre-pandemic levels as well. When restrictions were toughened, public catering and entertainment companies faced a decline in the demand for their services. Nonetheless, a lot of industries are demonstrating steadily higher output and sales than before the outbreak of the pandemic. Specifically, there has been a surge in the demand for durable goods (computers, telecommunication devices, and household appliances) and online trade and delivery services. The lockdown period boosted the demand for countryside housing and better housing conditions in general. These uneven trends across both industries and regions are also described in the Regional Economy report released by our regional branches before the quiet period.

The situation in the labour market also evidences that the economy has not only recovered, but is generally returning to its pre-pandemic growth path. The number of vacant jobs is at its peaks. High demand for labour resources is demonstrated by companies in construction and transport, a whole range of manufacturing enterprises, and in trade. These are the industries that started to bounce back earlier and were recovering faster and where demand exceeds pre-pandemic levels. A further expansion of output is possible through a restoration of the inflow of labour migrants, but — first of all — through an increase in labour productivity. This all means that after the rebound of the economy completes, it will develop more smoothly, at a more gradual pace, as compared to the recovery growth of output observed over the last 12 months.

In a situation when companies experience a shortage of workers or components, monetary policy measures promoting demand will not increase output or consumption. For instance, if the demand for cars rises even more, this will not boost their output, when there are no parts, but will only increase the queues for them and speed up price growth.

As regards inflation, it is above the forecast rate, and inflation expectations remain high. In August, annual inflation was 6.7%. According to the steady indicators of inflation measuring the inflation rate without volatile components, inflationary pressure continued to considerably exceed our target in both August and early September.

Indeed, inflation is impacted by multiple factors that do not depend on our monetary policy. The most important of them are world commodity prices, the country’s fruit and vegetable harvest, and bottlenecks in global supply chains (container shipments, microcircuit manufacture, etc.). It has been stated recently that these factors should be completely ignored if monetary policy cannot influence them.

This opinion leaves out one essential circumstance, namely, the fact that all these factors impact inflation expectations which, in turn, influence consumers’ sentiment and behaviour. Hence, they drive inflation across a wide range of products. Higher inflation expectations boost demand and increase the extent of the pass-through of higher costs to consumers. As a result, companies have the opportunity to almost completely pass costs to prices and thereby maintain or even increase their profits, which in turn discourages them to take efforts in order to reduce costs and improve labour productivity.

Monetary policy should prevent the inflationary spiral from getting out of control. Therefore, it should respond to transitory factors to the extent they transform into steady factors through higher inflation expectations. This is especially relevant when households’ inflation expectations and companies’ price expectations are at their peaks recorded over several years, as they are now.

Third, monetary conditions are adjusting to key rate increases faster.

Over the period after our July meeting, the yield curve of federal government bonds with maturities of up to three years has risen. Furthermore, yields on long-term government bonds remain almost unchanged since last March, when we started to raise the key rate. I would like to remind you once again that the stability of long-term interest rates is crucial for the stability of bank rates on investment loans and mortgages.

Interest rates in the deposit market were growing in July—August. The demand for bank deposits started to edge up. As of the end of July, the outflow of funds from retail time deposits ended for the first time since the beginning of last year. Moreover, it even reversed to a slight inflow in August, according to recent data. Our today’s decision on the key rate will support this trend, increasing the attractiveness of deposits and the propensity to save.

Lending still continues to expand at a fast pace. In July, the annual growth rate in corporate lending remained close to its six-year high. Growth in mortgage lending has slowed down somewhat after the conditions of the subsidised programme were changed, but is still close to its peaks as well. Unsecured consumer lending remains a matter of our great concern as annual growth rates in this segment continue to rise still, including due to the base effects. If the current trends persist, we admit the possibility of additional macroprudential measures to cool down this segment of the credit market, besides those provided for beginning from 1 October.

Monetary conditions continue to adjust to our decisions. At our next meetings, we will consider changes in interest rates and in credit and deposit activity and assess whether these changes are sufficient in order to create such monetary conditions that would help bring inflation back to 4% and stabilise it at this level.

As regards the risks to the forecast, their balance is still significantly shifted towards proinflationary ones.

The key demand-side risk is persistently elevated inflation expectations, fuelled by, among other factors, the still high inflationary pressure in the global economy. Another important risk is that deposit and credit rates are adjusting to the changes in the key rate more slowly than we expect, that is, the transmission of our decisions to monetary conditions takes more time.

As to supply-side risks, logistics problems and bottlenecks in production chains remain a significant risk as these issues may persist longer than we estimate today. The above-mentioned problem of a limited availability of labour resources is another risk, which is becoming increasingly important. Moreover, this problem may become even more serious. This is equally relevant for both the Russian labour market and the constraints experienced by other economies.

A decline in global demand due to a slowdown in the world economy may become a disinflationary risk. This may happen, for instance, in the case of a large-scale new wave of the pandemic, accompanied by extensive lockdowns in the majority of countries. Another scenario where inflationary pressure might also weaken faster in the Russian economy is a quick easing of the restrictions on foreign travel for both outbound tourism and the inflow of labour migrants.

There is a number of factors, the potential impact of which is uncertain today. In the first place, these are the volumes and quality of the grain and vegetable harvest this year both in Russia and worldwide. Moreover, it is still uncertain how steady global inflation is and how fast and extensively other central banks will respond to it.

Winding up, I would like to comment on our future actions.

We hold open the prospect of further key rate rises at the upcoming meetings. We will assess whether it is reasonable to increase the key rate, as well as how long the key rate should be maintained at the level achieved taking into account economic developments, inflation trends, and largely the balance of risks to future inflation, including those associated with persistently elevated inflation expectations.

In addition to the baseline scenario, we also consider various other scenarios of potential developments in the Russian and global economies. The three scenarios describing the key possible circumstances in the external environment were released last week in the Monetary Policy Guidelines for the next three years. Monetary policy will be able to bring inflation back to the target regardless of whether the baseline or an alternative scenario materialises.

Thank you all for your attention.

Q&A for the Media

QUESTION from Reuters:

The Bank of Russia has slightly adjusted its signal. Has it toughened or smoothed the signal, or does this imply a higher probability of a pause at the next meetings?


I would say that there is uncertainty about many parameters I have already mentioned, including how quickly monetary conditions and deposit and credit rates will adjust to the already approved key rate decisions (I mean not only today’s decision, but also the earlier decisions made since March) and how inflation expectations and households’ consumption and saving behaviour will change.

Therefore, we believe that currently we may advance at a standard pace, analysing how the situation will be evolving and making appropriate decisions if needed.

Nonetheless, our press release does include the signal that the situation might develop in such a way that we might need a few more key rate increases in order to bring inflation back to 4%. In this regard, it is possible to say that we have slightly toughened the signal.

QUESTION from RIA Novosti:

The Central Bank has reported today that inflation is above the forecast rate. Does this mean that it needs to be revised and, if so, to what level? Can it become necessary to adjust the forecast of GDP growth as of the end of the year, considering that economic growth has slowed down in the third quarter?


We will revise the forecast in general for both inflation and GDP at our core meeting in October. Indeed, we currently observe that inflation exceeds the forecast rate. However, it should be noted that in August and September these data were slightly distorted due to seasonal factors and, in some cases, shifts in seasonality. We need more time to properly assess the situation.

Speaking of adjusting the GDP growth rate, we will also analyse whether this is needed. However, if we decide to do so, we will most probably revise the GDP growth forecast for 2021 upwards.

QUESTION from Interfax:

Have you already measured how social payments and pensions made in September impact inflation and how many tenths of a percentage point they may add to the inflation rate? Should any monetary policy measures be taken in response to this? Has the probability that annual inflation will exceed by the end of 2021 your July’s forecast of 5.7–6.2% increased?

I have one more question. The Ministry of Economic Development proposes that financing from the National Wealth Fund for the Ust-Luga project should be excluded from the limit. What is your opinion about this proposal? Can such an exception be made only for this project or for all projects with a large share of imported equipment? Does not such an exception to the rules create risks to the economy and monetary policy and, generally, risks of breaching the promises made earlier?


First of all, as regards social payments, I would like to emphasise that the payments made by the Government have provided support to those who need it the most. These payments became possible owing to the faster recovery of the economy and the receipt of extra non-oil and gas revenues.

Speaking of whether and how this impacts the macroeconomic environment and inflation forecasts, I should say that the use of extra non-oil and gas revenues to cover additional expenditures is an integral part of the fiscal rule. Hence, fiscal policy in this case does not increase proinflationary pressure as compared to a situation without these extra non-oil and gas revenues.

Our previous forecast took into account this rule. Of course, it has been unclear how these additional non-oil and gas revenues will be used, but we have always factored in this principle implying that extra non-oil and gas revenues will be used to finance expenditures. Therefore, this neither requires any changes to our monetary policy, nor brings about any risks.

To the contrary, fiscal policy has normalised in 2021 compared to 2020, with the deficit of the budget, including both the general deficit and the non-oil and gas deficit, decreasing considerably. This means that the effect of the budget on inflation has rather become disinflationary in 2021 compared to 2020.

As regards the limits and financing of projects above a certain limit currently discussed in relation to both Ust-Luga and other similar projects, if funds are used to purchase imported equipment, this indeed will not affect the exchange rate. In our opinion, this will not impact the main parameters directly influencing monetary policy, either. We can see no risks in this context.

However, this is certainly within the competence of the Government to decide how to invest funds and what projects should be financed. We believe that it is most efficient to invest funds in such projects that will accelerate potential economic growth and are coherent with the structural transformation of the economy.

QUESTION from Izvestia:

What are the other options you discussed today? Did you discuss the option of keeping the key rate at 6.5%?


Indeed, we discussed three options: to maintain the key rate unchanged and raise it by 25 or 50 basis points. However, the discussion was mostly about the increases by 25 or 50 basis points.

QUESTION from Bloomberg:

You have already said that the key rate might be raised a few more times and that the signal has been toughened. Does your baseline scenario stipulate any preliminary forecast peak the key rate might reach? How much might it exceed 7% in the course of this cycle?


We do not forecast possible peaks. We adjust our monetary policy so as to achieve our goal and bring inflation back to 4% and keep it steadily at this level.

We have signalled that the situation might develop in such a way that we might need a few more key rate increases. This means that the key rate might exceed 7%.

QUESTION from Komsomolskaya Pravda:

The Government has extended and expanded the subsidised family mortgage programmes. In this regard, how do you estimate the future potential of the growth of housing prices?


I would say that these programmes have been transformed, rather than extended and expanded, as the general subsidised mortgage programme has actually been reduced, while the family mortgage programme has been increased. This will improve the results as these support programmes are becoming more targeted. In our opinion, this is really a reasonable decision.

Speaking of the future growth of real estate prices, we believe that such transformation of the subsidised mortgage lending programmes will slow down the growth of housing prices. Of course, this growth should decelerate and it is crucial to improve the affordability of housing for people taking mortgage loans to purchase housing.

QUESTION from Kommersant:

I have two questions. The first one is as follows. Your speeches and the Bank of Russia’s statements give me an idea that it is actually not so important for the Bank of Russia how the pandemic situation will develop in terms of its impact on inflation. This is because a new wave, although we certainly do not want it, would weaken inflationary pressure, but the latter would decrease either if there is no new wave since we would at least have outbound tourism.

How symmetrical are these risks? Can you compare the impact of a potential new wave with the effect from the reopening of markets if there is no new wave, at least in the main tourism regions? This is my first question.

And the second question, please. In its statement, the Bank of Russia speaks quite a lot about corporate profits earned as a result of a rise in inflation expectations, among other things. Short-term implications of this for monetary policy are absolutely clear. As regard the long term, how do you think these profits might change the potential of further GDP growth over the five-year horizon?


Speaking of the impact of a potential worsening of the pandemic on inflation, we do consider such scenario. As you know, our Monetary Policy Guidelines include the Worsening Pandemic scenario, which is one of the alternatives. If it materialises, the impact on inflation will depend on how this scenario will unfold.

I would like to remind you that at the beginning of 2020 we expected that the wave of the pandemic would rather have a disinflationary effect. However, as we can see, the second wave of the pandemic, for instance, did not have such influence, but has rather accelerated inflation.

Probably, if we assess what risks prevail in general, we should rather say that these risks are most likely symmetrical.

As regards corporate profits, this is a very good question. The potential influence of higher corporate profits (we can see that overall financial performance has increased in the economy in general) on long-term growth rates will depend on how corporates will use these profits. If necessary conditions and incentives are created, if there is confidence in the development of the economic environment and economic policy, and if companies invest their profits in new capacities, new technologies and projects improving labour productivity, these higher profits will definitely boost potential economic growth rates.

Hence, corporate profits certainly provide a resource for further development, and it is crucial to promote the conditions ensuring that these profits help achieve steady economic growth.

QUESTION from TASS Agency:

I have two questions. The first one is as follows. Recently, Sberbank presented its estimates of how much decarbonisation by 2050 will cost for the Russian economy without ESG transformation. Has the Bank of Russia made such estimates? Can this process influence monetary policy? Earlier, you spoke of long-term stress tests. Has the Central Bank completed this work already?

My second question is about the situation around Wildberries. Most probably, you know what is happening with payment systems and this retailer. It would be very interesting to hear your opinion on this issue.


Speaking of potential investments in ESG transformation, in the transformation of the economy in connection with the energy transition, decarbonisation, it is impossible to give any particular figures in this regard. However, one thing is obvious, in my opinion. This process will require vast investments and serious transformation.

There is great uncertainty in this area, including about technologies that can support such transformation and their scalability. Currently, various international organisations develop different scenarios or assumptions for them. We are extensively cooperating with the Network of Central Banks and Supervisors for Greening the Financial System. The approaches to scenarios developed within this Network are among those applied in our stress tests. We also use other methods.

We will carry out stress tests on a regular basis, including both long-term tests, which we have mentioned, and short-term ones. Among other things, we estimated how the imposition of carbon tax, namely the parameters that are now under discussion, might impact the economy and the financial system. In other words, these are short-term prompt stress tests. We will continue our stress tests.

This definitely influences the economy and will certainly impact monetary policy and the functioning of the financial system as well. These stress tests will enable us to estimate the areas and the extent of the influence of such transformation.

We will also carry out a stress test for the period until 2050. As soon as we have the results, we will provide relevant information.

As to the situation with payment systems, we are certainly aware of what is happening. However, we believe that this issue is within the scope of contractual relations. According to our assessment, no laws have been violated, and thus there are no grounds why the regulator should intervene in the situation.

QUESTION from Vecherny Dalnegorsk:

What are the reasons why the Bank of Russia’s communication on inflation focuses more on food products, rather than all other components of the consumer basket, including petrol?


Indeed, our analysis characterising inflation relies on a range of indicators. We analyse different product groups separately, the indicators excluding volatile components, and one-off components. However, you are probably right. Currently, we still tend to focus more on the growth of food prices, food inflation trends, in the first place because prices for many food products have soared.

Secondly, this is what causes people’s concerns, is sensitive to people, and forms inflation expectations. However, you have mentioned petrol, and petrol price movements also have quite a significant effect on changes in inflation expectations, just as housing and utility rates. Thank you for your question. We will think of it. In our communication, we will focus not only on food inflation, but will also pay more attention to other components of inflation movements as well.

QUESTION from Izvestia:

According to some analysts, the key rate may reach 7% at most, after which the Central Bank might even start to reduce the key rate next year. How realistic is this opinion?


As I have already said, we assume that we might need not only one, but several key rate increases in order to bring inflation back to our target of 4%. There is still great uncertainty about this, as I have mentioned earlier, about the level of persistent inflationary pressure, and the pace of adjustment of monetary conditions to our earlier decisions and changes in inflation expectations. Today, it would be too early to state that the earlier increases in the key rate will be definitely sufficient to return inflation to the target.

Hence, the key rate might be raised a few more times. As regards the time when the Bank of Russia might start to reduce the key rate, it is entirely premature to speak of this.

QUESTION from Fomag:

I have two short questions. Is a double-digit key rate still possible or is it a completely outdated instrument that the Russian economy will never need any more?

And another question, please. Western countries generally consider September to be a challenging month in the US securities market. Should Russia expect September to be challenging as well or is this opinion rather a sort of unworthy financial prejudices?


We do not see a scenario in the foreseeable future that would require us to raise the key rate to double digits. We do not consider such scenarios.

As to the situation in the securities market, indeed, there are some prejudices in certain cases.

We have no objective reasons to expect any serious fluctuations in the Russian securities market. It is sufficiently stable and is actively developing, investors’ demand is still high, and there is an increase in IPO and financial assets placements. Therefore, the situation there is developing in a very balanced manner, in my opinion.


The presidents of Russia and Belarus have reached an agreement on aligning the two countries’ monetary policies. What are the parameters the common monetary policy of Russia and Belarus will provide for? How long might it take for this mechanism to be launched? How efficient will this policy be, given that the two countries do not have a single currency?


As regards a single currency, I believe it is too early to talk about this. The same thing was stated by President Putin. Speaking of aligning the two countries’ monetary policies, this is true — we are discussing this issue with the National Bank of the Republic of Belarus to identify the areas for aligning our monetary policies. We assume that the National Bank of the Republic of Belarus will also switch to inflation targeting in the future.

The time it might take will depend on multiple factors, but it is important that we will be working together towards this goal. In our opinion, such policy will align the conditions for doing business even without a single currency in place. Technically, this alignment of the two monetary policies is aimed at creating more predictable and coherent conditions for the development of trade and economic relations between Russian and Belarusian companies.

QUESTION from Interfax:

My question is about your words that the growth rate of unsecured lending remains a matter of concern for the Bank of Russia. Actually, Maxim Oreshkin also expressed similar concerns this week.

In this context, my question is as follows. Is the Central Bank considering any other macroprudential instruments to contain the growth of unsecured lending in addition to the increase in risk ratios? What are these measures, given that the State Duma has actually not even started yet to consider the draft law on limiting... containing the portion of retail loans?

My second question is about the planned sale of the equity stake in Bank Otkritie. Considering that there are myriad speculations in mass media and everywhere in the market already now, could you please specify a strategic buyer the Central Bank would prefer to find? Do you completely exclude state-owned or -controlled enterprises, or do you still admit that this may be a company or a bank with an equity stake held by the state? What strategic investor for Otkritie would you consider to be an ideal one? Has anyone expressed interest in this deal already now, although bids will be officially submitted only in October? Is there any interest in this bank?


The first question is about unsecured consumer lending. We do have concerns about this and I have already said about this several times. We have already increased macroprudential buffers beginning from 1 July, which is because we are concerned about the trends in the market of unsecured consumer lending. Moreover, we are also planning the second stage in this regard — we are going to raise macroprudential buffers again, in three months after the first increase.

We will be closely monitoring the situation. Currently, we can see that annual growth rates have not edged down yet. However, the month-on-month growth rate has slightly stabilised and possibly even decreased somewhat. It is clear that the annual figures are influenced by the base, but the growth rates remain elevated, they are still high.

We will be ready to consider another increase in risk ratios within macroprudential measures. Although they are efficient, I believe that their positive effect is limited in the conditions when the banking system in general does have a capital cushion, but its distribution is uneven.

This is why we are actively promoting this law, are taking extensive efforts for it to be adopted as we will thus receive more efficient instruments to limit risks in this important lending segment. However, if this law is not approved, we will employ the set of measures available to us, although, as I have said already, their positive effect is limited.

As regards Otkritie, we are going to sell it, as you know. Currently, we are analysing strategic investors’ interest, but we consider IPO to be the main mechanism. We have already spoken several times about who is an ideal strategic investor. The preferred result of the Otkritie sale would be a reduction in the stake held by the Government in the banking sector.

QUESTION from Vedomosti:

The Bank of Russia has approved a new regulation on required reserves. According to this document, beginning from October, the required reserve fund will be recalculated based on banks’ statements as of the first day of each month, instead of calculations on a daily basis.

Don’t you think that, as a result, banks might start to use unfair practices minimising their balances as of the reporting dates and that these practices might affect banks’ pricing policies?


We have heard such concerns from one of the banks. We have analysed the arguments. Of course, we will be monitoring any changes in banks’ behaviour and adjust the mechanism for calculating required reserves if needed. Nonetheless, we believe that any attempts to manipulate the balances over a day generally demand much effort and involve clients in this sort of operations. Eventually, clients may simply prefer other banks as a result of such attempts to manipulate the balances. Nevertheless, we will be monitoring the situation. We are ready to continue the discussion of this issue with banks. However, we believe that this measure is reasonable overall as it generally reduces regulatory burden for a large number of banks quite significantly.

QUESTION from TASS Agency:

You said in July that the Bank of Russia expected a further decrease in prices for such vegetables as cabbages, potatoes, carrots, beetroot and onions. Do you still observe this trend?

When exactly in the fourth quarter, inflation might start to slow down?


Speaking of these very vegetables and, probably, all fruits and vegetables in general, prices for cabbages, potatoes, carrots, beetroot and onions rose quite quickly in spring. Moreover, this growth was even faster and more considerable than normally during this season. By the end of summer we observed that prices for these vegetables started to go down faster and earlier as well. This was why we expected that, as a result, the movement of fruit and vegetable prices would largely offset the earlier surge in prices. However, this trend decelerated after all at the end of August. As regards fruits and vegetables in general, we know that the time of harvesting has shifted. At the moment, it is generally too early to make any conclusions about how prices for cabbages, potatoes, carrots, beetroot and onions might change in the future and how considerably their prices might decline. We will be monitoring the situation. This is a matter of concern, a factor of concern that will impact inflation in 2021, among other things.

We expect inflation to slow down in the fourth quarter, but we do not give any forecast about a particular month when this might happen.

We can observe some factors that will ensure this slowdown, specifically, the diminishing impact of temporary factors, the exclusion of the base effect, and certainly our monetary policy and the decisions we have made since March.

QUESTION from Vologda:

The Central Bank has been raising the key rate to contain demand. Are there any groups of the population, economic groups benefiting from a higher key rate?


We have been raising the key rate in order to reduce inflation. Lower inflation benefit almost all groups of people. Moreover, the increase in the key rate will support the demand for deposits, that is, it will help those who prefer to save money for the future.

Thank you for your attention. Have a nice day.

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