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Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting on 17 December 2021

17 December 2021

Good afternoon,

We have made the decision to raise the key rate by 100 basis points to 8.50% per annum. Inflation is still high. Our decision is aimed at ensuring its reduction to the target by the end of next year.

I would now dwell on the reasons behind our today’s decision.

I will start out with inflation. Its acceleration in October and November was caused by both transitory and steady factors. The former include delays in harvesting, soaring prices for New Year’s holidays abroad, as well as the persistent deficit in the car market due to disruptions in component supplies, and a number of other supply-side constraints. Even if we leave aside the surge in product and service prices, we have the stable component of inflation which considerably exceeds our target. This is because the growth of demand still surpasses the capacities to ramp up supply.

In this context, our special focus is to ensure that the monetary policy is well-balanced. What do we mean by that? It is the stable component of inflation related to demand trends that monetary policy impacts directly. However, we should not ignore temporary factors. According to the experience of the last three months, these factors are not only accelerating overall price growth, but are also intensifying inflation expectations. Hence, temporary factors are becoming steady. When inflation expectations remain high, we need more time and a more significant tightening of monetary policy to be able to return inflation to the target. If we delay this, both inflation and inflation expectations will continue to go up.

Of course, a very tight policy aggressively responding to transitory factors could bring inflation back to 4% more quickly. However, this would entail a slump in economic activity and a subsequent considerable deviation of inflation downwards from the target. The objective of a well-balanced monetary policy is to ensure price stability and limit sharp fluctuations in inflation, whether upwards or downwards.

Our baseline forecast assumes that inflation will decrease to 4–4.5% by the end of 2022. It takes into account both a reduction in the steady component of inflation and the reverse — disinflationary — influence of a part of temporary factors.

In other words, we assume that prices for certain products and services that have soared this year can adjust downwards next year. In some cases, this will be owing to the normalisation of the supply-side situation; in others — the downward trend may emerge as elevated demand diminishes. We have observed such processes this year already. For instance, if we talk about prices for pork and chicken bought most frequently, there were periods of price surges provoked by the worsening of the epizootic situation. Nonetheless, supply has rebounded by December and weekly statistics show that prices have declined, although only slightly. An illustrative example of price adjustment when soaring demand goes down is chip boards and metal roofing tiles. The annual growth of prices for these goods remains high due to the drastic increase in the first half of the year. Nevertheless, after the peak in July, prices for boards and tiles have declined by 20% and 14%, respectively.

I will now speak of the economic situation. According to our estimates, economic activity is growing faster this quarter as compared to the previous one, but predictably more slowly than during the period of its active recovery in the second quarter of 2021. As of the end of the year, the overall increase in GDP might reach nearly 4.5%.

Output is expanding in a wide range of industries. As of the date of the Board of Directors meeting in October, output in services was still below pre-pandemic readings, whereas today (despite the rather challenging pandemic situation) it has approached this level. By the moment, oil output has not recovered completely due to the OPEC+ oil production cuts. Passenger transportation is still below pre-pandemic volumes as well.

As shown by high-frequency indicators, both consumer and investor demand continues to trend upwards steadily. Investment growth is supported by a substantial rise in corporate profit in many sectors and expectations about a further expansion of demand.

I would now focus on the labour market. In October, unemployment decreased to 4.3%, which is its record low. The demand for labour continues to grow. The number of vacant jobs is significantly higher than two years ago, specifically by about a third. Many industries are facing a shortage of workers, including both specialists and low-skilled workers. Speaking of the inflow of labour migrants, it has already returned to the pre-pandemic level, according to recent data. However, as the demand in the industries with a large portion of labour migrants (in courier services and construction) has surged over this period, companies still experience a deficit of labour migrants.

Consequently, the rise in the demand for labour in various groups of employees is translating into the steady increase in nominal wages. In the course of the discussions preceding our today’s decision, several executives of our regional branches stressed that increasingly more companies were forced to raise wages at a double digit pace to be able to retain their employees. The staff shortage is a factor limiting enterprises’ capacities to expand output. It is hard for them to catch up with growing demand. This suggests that proinflationary risks brought about by labour market gaps are strengthening.

Monetary conditions continue adjusting to our earlier decisions on the key rate.

After the meeting in October, nominal interest rates, including on federal government bonds, deposits, and loans, continued to go up. Yields on federal government bonds rose over the entire curve. The growth of short-term yields has been mostly driven by the increase in the key rate and the updated forecast of its further path, whereas long-term yields are largely influenced by the escalation of geopolitical tensions.

Nominal interest rates on loans and deposits are rising. However, given the current level of inflation and inflation expectations, monetary conditions remain neutral in the meantime. This is evidenced by the persistently high growth rates in lending, as well as the still slow rise in deposits.

Businesses and households continue to demonstrate high demand for loans. Nonetheless, the increase in unsecured consumer lending has started to slow down, which was promoted by additional macroprudential limits on high risk loans imposed on 1 October.

As regards ruble-denominated time deposits, their growth in November—the first ten days of December continued, but its pace is still as slow as in October. On the one hand, higher interest rates make time deposits a more attractive savings instrument. On the other hand, banks artificially limit depositors’ opportunities to use these new, more profitable offers. Banks offer different deposit terms for the so-called ‘old’ and ‘new’ money. There are barriers in the form of fees that depositors need to pay to transfer their funds from one bank into another. We believe that such differentiation, or to be more exact, discrimination is inappropriate and have already proposed a number of initiatives to eliminate it. We hope that legislative authorities will support our ideas. This will not only protect bank customers’ rights, but will also make the deposit channel of the monetary policy transmission mechanism more efficient in the future.

Speaking of risks, proinflationary ones still prevail. As before, the main risk is that households’ and businesses’ increased inflation expectations may remain high for a long time. If people expect price growth to stay as high in the future, their saving activity will be low. As a result, it will take more time to bring inflation back to the target.

Another critical proinflationary risk is the increasing mismatch between labour demand and supply. Specifically, if wage growth is only driven by elevated inflation expectations and labour productivity does not improve, this might accelerate the inflationary spiral. Eventually, price growth will quickly absorb the earlier increase in wages.

Another important group of proinflationary risks is related to external factors. Inflation has surged worldwide. This is especially obvious in prices for the products accounting for a large portion in Russian exports or imports (energy commodities, wheat, and sugar). The actual increase in prices for commodities and intermediate goods in production chains has not yet fully passed through to producer costs. Our baseline scenario assumes that price trends in some product groups will reverse to a certain extent next year. However, this change might be less significant than we expect. The risks of a further acceleration of price growth worldwide are associated with both supply- and demand-side factors.

As regards supply-side factors, it might take more time to restore production and logistics chains and cope with staff shortages. As the pandemic situation is uncertain, international borders may remain closed longer. All these factors might be the reason for a slower exhaustion of temporary factors and a slower reduction in inflation than assumed in the baseline scenario.

Speaking of demand, accommodative monetary conditions existing in the global economy since the outbreak of the pandemic might remain for a longer period, despite the growing trend towards monetary policy normalisation in advanced economies. In the long run, monetary policy tightening in advanced economies will certainly have disinflationary impact. However, in the short run, global inflation may stay high longer, given the time lags of monetary policy.

A faster monetary policy normalisation in advanced economies might provoke additional short-term proinflationary effects for emerging market economies. Thus, a reversal of capital flows might increase exchange rate fluctuations and overall volatility in the financial markets of emerging market economies. For Russia, rising geopolitical tension is another risk of a temporary intensification of volatility.

As regards disinflationary risks, we believe that they have a weaker effect and are primarily associated with supply-side factors. As I have already said, our forecast assumes that some disinflationary factors will materialise next year. These include a partial restoration of production and logistics chains, an expansion of food supply in global markets, and generally a certain adjustment of prices in global commodity markets down from the currently high levels. If this adjustment is more significant, the disinflationary effect will be stronger than predicted in the baseline scenario.

I will now speak about our future decisions. The Board of Directors believes that we have apparently not yet tightened monetary conditions to the extent needed to bring inflation back to the target next year. Therefore, we hold open the prospect of a further key rate increase at the upcoming meetings. Nonetheless, the situation might change. At the next meeting, we will consider how our today’s and earlier decisions, given the time lags, influence monetary conditions, among other factors. We will take into account that, even with the key rate unchanged, monetary conditions might toughen if inflation and inflation expectations go down. At our core meeting in February, we will adjust the range of the key rate forecast and the medium-term forecast in general.

Thank you for attention.

Q&A for the Media

QUESTION from Reuters:

According to analysts’ opinion, the signal in the press release has been eased. In what circumstances could we speak about the end of the policy tightening cycle in December?


It is definitely too early to speak about the end of the policy tightening cycle in December. As I have already said, we admit the possibility that the key rate may be raised further, maybe more than once. This is true, our press release says ‘key rate increase’ in the singular, but we simply mean that the probability of several increases has decreased as compared to our estimates in October. Anyway, we will be monitoring further developments, inflation movements, stable inflation factors, and inflation expectations and make appropriate decisions taking into account all circumstances.

QUESTION from Interfax:

My first question is as follows. What level of inflation do you expect by the end of 2021? How much might it exceed the upper bound of the 7.4–7.9% range you forecast in October?

And the second question, please. What are the other options of the key rate decision the Board of Directors discussed today? Did you consider a possible increase in the key rate by over 100 basis points?

Another question, please. How will you correlate fiscal rule-based operations and the planned investments from the National Wealth Fund? Are you going to mirror, match, or extend them so as to avoid any impact on the market?


The final level of inflation by the end of 2021 largely depends on temporary volatile factors. If the situation unfolds in a favourable way, it is entirely possible that inflation will be equal to the upper bound of our forecast range — 7.9%. However, if proinflationary factors have a stronger effect, inflation might even exceed this rate. Overall, it will be approximately 8%.

The main options we discussed today were 50, 75 and 100 basis points. The Board of Directors considered only these three alternatives.

As regards fiscal rule-based operations, we will mirror and extend them. We will clarify how this will happen and when these operations will begin. As an example, you might see how these operations were carried out in 2020 Q4.

QUESTION from RIA Novosti:

Rosstat reported that inflation in Russia slowed down to 8.11% as of 13 December. Can we say that inflation in the Russian Federation has passed its peak? When does the Central Bank expect a steady deceleration of inflation?


Inflation was really high in November. As of the end of the month, annual inflation reached 8.4%. This was largely driven by one-off factors, including volatile ones, such as rising prices for New Year trips. According to weekly statistics, inflation edged down slightly over the first two weeks of December. As you know, we do not rely on weekly information as it covers a narrower range of goods. We will analyse changes for December in general. Nonetheless, we expect that annual inflation in December will be lower than in November.

We still need to assess the situation as it is really impacted by multiple volatile factors. We believe that inflation will start to slow down steadily at the beginning of the year. However, we still need to analyse statistics.

QUESTION from TASS Agency:

Economists expect the third wave of global inflation in 2022. Does the Bank of Russia share such concerns? How might this affect the Russian economy?


This is true, we can definitely observe that inflation is increasing, has increased worldwide. Today, it is no longer considered as temporary. Many central banks recognise that this is a steadier trend. As a response to this, they plan to start monetary policy normalisation earlier, which should ultimately help reduce this inflationary pressure globally.

Nonetheless, our baseline scenario for the next year assumes that inflation in Russia will slow down slightly, but we will adjust this forecast in February relying on new data. I would like to remind you that our Monetary Policy Guidelines include an alternative scenario of global inflation trends. Accordingly, this scenario describes how the Bank of Russia will respond to such developments and what decisions it will make considering both the economic situation and its objective under this scenario to return inflation to 4%. We do have necessary tools for this.


I have two questions. Actually, the Bank of Russia started to raise the key rate in March. Today, we have got the seventh increase. How strongly are these decisions already influencing the current level of inflation? How much higher could it have been without these increases? Could you say that they have not yet translated into current inflation significantly and we are still observing the consequences of last year’s policy easing?

And the second question, please. Making your decision today, did you take into account the statement made by the US Fed on Wednesday that it was going to wind down its fiscal stimulus programme faster? If the US Fed had not made that statement, could your decision have been different or did you decide anyway that the increase should be approximately 100 basis points?


As regards a possible level of inflation if we had not started to raise the key rate in March. It would have been higher probably, although the time lags of our decisions are from three to six quarters. Therefore, the decisions we made in March and later have not yet fully translated into monetary policy changes and, ultimately, inflation.

Of course, accommodative monetary policy significantly contributed to the recovery of the economy — it rebounded much more quickly than we expected. We can see that the restrictions that are much spoken of affect supply, due to which manufacturers fail to catch up with the recovery growth that is so fast. This has definitely become one of significant drivers of inflation and its stable components.

Generally, we publish the analytical decomposition of inflation and its deviations from the target in our Monetary Policy Report in April when we analyse overall data for the year. This is when we obtain comprehensive statistics for the previous year, specifically a quarter-by-quarter breakdown of GDP and its components. Hence, we will be able to give a more accurate assessment approximately in four months.

Speaking of the effects of the policy tightening, we believe that the accumulated effect — if we return to this topic — resulting from the key rate increases both in March and today, as well as from this cycle in general will fully manifest itself in 2022.

As regards the US Fed’s statement, generally our baseline forecast takes into account monetary policy normalisation. We factored in this process in our baseline forecast. Of course, we will explore in greater detail how a faster tightening announced by the US Fed might impact various indicators of economic development, external factors. We will discuss this issue in detail at our core meeting in February when we will revise the entire forecast comprehensively.

QUESTION from Reuters:

When will the portion of foreign investors in federal government bonds restore, according to your expectations? Might this happen in the first quarter? Will this support the ruble and thus reduce inflation risks caused by the weakening of the ruble?


There are multiple factors impacting foreign investors’ decisions on whether to buy federal government bonds or not. They include factors associated with investors’ confidence in macroeconomic policy. Of course, these are also geopolitical factors. Currently, these factors are definitely related to expectations of a faster monetary policy normalisation by the US Fed.

However, even though the portion of foreign investors in federal government bonds has decreased and is now slightly below 20%, it hovers around the same percentage in absolute terms. Today, we do not expect any significant changes in this percentage in the near future and, accordingly, any notable influence on exchange rate movements, and so on.

QUESTION from Izvestia:

Did you take into account such geopolitical risk as the risk of tougher sanctions when making your decision?


Our baseline scenario takes into account the sanctions that are currently in place. We have made no changes in this regard. However, we do consider this as a risk and always take into account that this geopolitical risk exists. Our key priority in addressing this risk is to have all buffers, all instruments that will enable us to take appropriate measures if this risk materialises in order to maintain financial stability and price stability. We do have all necessary instruments.

QUESTION from Bloomberg:

Does the Bank of Russia really support the proposal to completely prohibit Russians’ investments in cryptocurrencies? How can this be done technically?


As you know, we are quite sceptical about cryptocurrencies, to put it mildly. This is because cryptocurrencies involve high risks for retail investors as this asset is highly volatile. Moreover, cryptocurrencies are often used to carry out illegal operations and are not transparent. Therefore, we certainly cannot welcome investments in such assets.

We firmly believe that Russia’s financial infrastructure should not be used for cryptocurrency transactions. It is totally possible to prohibit this.

QUESTION from Fomag.ru:

On the one hand, investors have now increased activity in the bond market amid growing interest rates, and yields in the segment of high-yield bonds are nearly 14% or even more. On the other hand, defaults have returned to the agenda. This problem has not yet become acute, but still what risks can you see in this connection? This is my first question.

And another question, please. Would it make sense to raise the key rate more significantly at a time, for instance, by up to 1.5 or 2 percentage points at once?


As regards individuals’ investments in the securities market, you know that we are really concerned and care a lot about the protection of people’s rights when they enter the securities market. Hence, certain instruments that can bring considerable returns but simultaneously involve high risks should be accessible to qualified investors or non-qualified investors upon testing. We will develop further these mechanisms to ensure that investors comprehend all inherent risks.

These risks can materialise in the securities market. Analysing the history of the development of securities markets, we may say that it is crucial for investors entering this market to be aware that invested funds are no longer savings guaranteed by the government to a certain extent and understand all these risks that might materialise at certain stages of the cycle.

As regards the size of the increase, we choose it depending on our forecast and expected inflation trends. We thus decide what path of the key rate we need to return inflation to the target. Generally, an increase may differ from the standard size when we considerably revise our forecast.

QUESTION from Ircity (Irkutsk):

After the launch of the subsidised mortgage lending programme, housing prices in the Irkutsk Region soared by more than a fourth and remained at this level. Now, prices for used cars have peaked, and there is a shortage of new cars, just as in Russia in general. Judging by information from banks, car lending hits record highs, despite the price surge. Does not the Central Bank expect that many of those who raise car loans today out of fear will regret this when they realise that repayments are much higher than they can afford with their incomes.


This is a critical issue because when people purchase expensive goods on credit, they will then have to service these loans, regardless of whether interest rates are high or low, and allocate a certain amount from their incomes to make repayments.

Hence, most people buying goods on credit should certainly compare their borrowings with their incomes and an expected rise in incomes. They should understand whether their incomes will allow them to make repayments without forcing them to reduce their consumption considerably.

By the way, for this purpose, we have introduced and are widely applying the debt service-to-income ratio in the regulation. It helps borrowers comprehend their financial position and encourages banks to prevent excessive debt burden issuing loans to people who will not be able to service them.

Of course, there is yet another element to the general rule in the current situation: when prices are persistently rising, rush purchases increase as well. These rush purchases might really turn out to be mistakes in terms of how well people can estimate future prices for such goods.

I have already referred to some examples when prices surged for some goods, but later on they even declined. If the Central Bank ensures overall price stability, and we are committed to achieve this, after such a dramatic rise in prices it will not repeat most probably.

Prices for certain products might rise more slowly than the general growth rate, and prices for other goods might even edge down. Currently, it is hard to name product groups where this might happen. Of course, this should be taken into account to avoid mistakes purchasing expensive goods, especially when they are bought on credit. In this regard, it is essential not to make emotional purchases because, if prices go down, it would turn out that a person paid an excessively high amount.

QUESTION from Kommersant:

What is most interesting in your release is the information about staff shortages that might continue. Do you really expect unemployment to decrease further? What is the lowest rate of unemployment you consider safe? For instance, if unemployment is 2% over the three to four year horizon, would this rate be safe or would you consider this a problem?


It is difficult to say what unemployment rate could be safe. After all, central bankers generally use the term ‘neutral’, or ‘equilibrium’ unemployment. There is always a certain rate of unemployment because there are job seekers. This is the so-called structural unemployment, and its level varies across countries and might change depending on current structural changes.

We are facing serious structural shifts due to the pandemic. Accordingly, it is rather hard to accurately assess this rate of equilibrium neutral unemployment. However, we believe that current developments already now suggest that unemployment might turn out to be below this level. We will be monitoring further changes in the labour market.

What effect might this have? This might really cause an increase in wages not driven by higher labour productivity. In turn, this will induce inflationary pressure. Moreover, even the nominal growth of wages might be absorbed by higher prices.

Therefore, we cannot say that this is a healthy process. It is crucial to have a real rise in wages supported by better labour productivity that would not be absorbed by inflation. This is the only way to really improve people’s well-being.

Of course, the labour market, the employment rate and wage changes are in the focus of our attention today.

QUESTION from Kaluzhskaya Nedelya (Kaluga):

Speaking of inflation expectations, there is not a single day without news in mass media that some products, whether potatoes, coffee, clothing or telephones, will definitely become more expensive. First Deputy Prime Minister Andrey Belousov said that a new wave of inflation was totally possible in 2022.

All this might further push up households’ inflation expectations that are already high. In their interviews, the Bank of Russia’s representatives repeatedly commented that these are high expectations that create serious risks of a persistent rise in inflation. Of course, people start to buy more fearing a further increase in prices.

Does the Central Bank have any, let’s say, instruments to address high inflation expectations?


You are absolutely right — inflation expectations and their dynamics are an important factor we consider when making our decisions. This is because inflation trends are impacted by inflation expectations, among other things. For instance, they depend on whether one-off factors are really transitory or will become permanent.

The key, or even the only effective instrument limiting inflation expectations, reducing and anchoring them at a certain level, is consistent monetary policy enabling the Bank of Russia to bring inflation back to the target despite the deviation of current inflation from this target.

Unfortunately, Russia has a 25-year history of persistently high inflation. People have not accumulated sufficient experience to be confident that the Central Bank will address this problem anyway and is able to return inflation to the target, regardless of how significant the deviation is.

We have a rather short period of such experience. Probably, we will need at least ten years and some episodes when the Bank of Russia demonstrates how it uses its instrument and that it is able to bring inflation back to the target in order to anchor households’ inflation expectations.

Of course, the experience of 2021 has shown that inflation expectations are still high and unanchored at the moment. We will need to address this issue. As inflation expectations are not anchored, we need more decisive monetary policy measures than, for example, other countries having a long-term experience in this regard, where inflation expectations are anchored and people are less responsive to one-off factors, imported inflation, and so on because households there are more confident that their central banks will make appropriate decisions and reduce inflation.

Our objective is to achieve a decrease in inflation expectations as well by pursuing consistent monetary policy.

QUESTION from Izvestia:

Could you please give more details about fees for transferring a deposit to another bank? Have I got it right that banks set a fee when people withdraw money from a deposit?


No, this is not about money withdrawal from a deposit, but about transferring money from my account with one bank to my account with another bank.

Of course, it is possible to withdraw cash and then deposit the money with another bank. However, we have been living in the conditions where cashless forms prevail for quite a long time already.

Such fees might often be a barrier preventing people from using their funds as they wish to and selecting the banks offering more attractive deposit rates.

Therefore, we are now discussing an initiative suggesting fee-free transfers between a person’s accounts with different banks of an insured amount within the limit of, let’s say, one million and four hundred rubles.

We believe that this will enhance competition among banks and strengthen, monetary policy transmission, among other things.

QUESTION from TV Omsk:

What would you advise to your friend before the New Year, considering the new decision on the key rate: to keep savings, buy foreign currency, or, probably, raise a loan and use this money to make a large purchase, or maybe not to change financial behaviour at all?


This is certainly a very practical question. When we make a decision, we influence, so to speak, macroeconomic parameters, and people’s behaviour as well. This is true. All our decisions translate into inflation through changes in people’s behaviour, specifically their preferences to save, consume, or invest more. However, when it comes to particular persons, it is hard to give any general advice not knowing their specific situations. Hence, advice can differ and optimal strategies might vary depending on the level of a person’s income, the amount of available funds, and expected changes in income, namely whether it will increase further, stay stable, or decline due to certain circumstances, future expenses, and this person’s risk appetite. Of course, this largely depends on the situation of every particular person.

Overall, as regards changes in the situation that might influence people’s decisions, I can say that the increase in the key rate will definitely make deposits more attractive as a form of savings. Deposits are becoming more advantageous again, that is, inflation does not absorb interest rates any longer, in contrast to what we observed a while ago.

Of course, given the current conditions when demand is elevated and there are even some aspects of soaring demand, I can say that the worst thing to do would be to make impulsive financial decisions or follow another person’s advice or example. Such a decision might turn out to be a failure, or there can be different circumstances, as I have already said.

Therefore, making any financial decisions, it is certainly essential to be guided not by another person’s example, but rather by one’s own analysis of incomes and expenses. Nonetheless, as for me, for instance, I would think twice before making any purchases because of the information that prices for some products have grown today or that some goods will definitely become even more expensive. As I have already said, there can be an adjustment in prices, including a decline or a slower rise. Moreover, demand might stop surging, and there might appear much better options. Common sense is the key here.

That is all for today. Thank you very much. I wish you health and success.