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Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting on 11 February 2022

11 February 2022

Good afternoon,

Today, we have made the decision to raise the key rate by 100 basis points to 9.50% per annum.

This decision is based on a significant revision of the economic situation and its prospects. Contrary to our expectations, inflation trends have not reversed by the moment. Moreover, the steady components of inflation have even strengthened. The main reason behind this is increasing imbalances in the economy. Accordingly, we will need a tighter monetary policy than we assumed previously. We expect annual inflation to return to the 4% target no earlier than in the middle of next year.

Making our decision, we considered the balance of risks for the economy and inflation, just as we usually do.

I will start out with the situation in the economy that has not only offset the slump of the pandemic period, but even notably exceeded a balanced growth path. We can see a stable rise in consumer and business activity. Russian companies’ net profit nearly doubled as compared to pre-pandemic readings. Unemployment dropped to a new record low. These are impressive results, but there is a catch — high inflation.

In the current conditions, it would be a mistake to believe that the observed economic growth is steady and balanced. High inflation is an indicator of an increasing overheating of the economy. If we take no measures to drive the economy back to a balanced growth path, its overheating will increase further and cause an uncontrollable acceleration of inflation and a subsequent slowdown of economic growth, or even a recession. High inflation erodes all the benefits of economic growth for households, threatening their real incomes and savings and thus worsening their living standards.

An overheating of the economy is a consequence of intensifying demand and supply gaps. A lot of people can observe a recent surge in prices for housing, cars and domestic tourism. These markets are the most vivid examples of possible consequences of soaring demand that exceeds the potential to ramp up supply.

A deficit of components and logistics bottlenecks have become a serious challenge for enterprises during the pandemic period. Companies are gradually settling these problems, but it will take at least a year to eliminate them completely.

Staff shortages are constraining output expansion increasingly more strongly. Unemployment has declined to its record low today, and companies will face difficulties hiring new employees to expand production. We consider this to be a more serious and longer-lasting challenge for a rise in supply than the persistent but still temporary logistics bottlenecks.

In these conditions, cheap lending will not help ramp up output quickly, but will only continue to spur demand. Monetary policy can and should play its countercyclical role. In order to protect households’ real incomes and savings against depreciation and create conditions for a healthier and steadier economic growth, we need to address overheated, excess demand. Excess demand is a surge in demand leading to rising prices, rather than higher consumption. This is exactly why we continue the cycle of key rate rises.

Given the monetary policy pursued, we forecast that GDP will grow by 2–3% this year. Its growth will equal 1.5–2.5% next year and return to 2–3% by the end of the forecast horizon, which we consider to be a steady rate.

As regards inflation, prices surged over the past year and exceeded our inflation target two times. In January, annual inflation sped up even more.

Temporary supply-side proinflationary factors have actually turned out to be longer-lasting. Global logistics bottlenecks have been hindering the imports of many goods for two years already. Prices for domestic tourism services continue to rise amid restrictions on foreign travel.

Transitory factors actually have the effect of steady ones, which has considerably affected households’ and businesses’ inflation expectations. In recent months, they reached the highest level recorded since early 2016.

There is even an opinion that the key rate increases do not contain price growth at all. However, if we had not started to raise the key rate last spring, inflation would have considerably exceeded 10% by the moment. Our key rate has prevented this, but the actual pressure of proinflationary factors has turned out to be stronger than we could have assumed.

Considering the stronger inflationary pressure and the revision of the potential duration of temporary factors, we have increased and expanded the range of forecast inflation to 5–6% this year. Given the measures we are taking, we expect annual inflation to return to 4% by the middle of 2023.

Speaking of monetary conditions, I can say that they are adjusting to the increased key rate more slowly than we expected. Due to higher inflation and inflation expectations, we have shifted from easy towards neutral conditions only now. Our today’s decision will contribute to the shift towards tight monetary conditions.

This will help limit the growth of long-term credit rates that significantly depend on inflation expected in the future and the inflation premium. The lower is the inflation rate included in these interest rates, the more affordable will be long-term loans.

Lending growth has stopped to accelerate, but this is still insufficient today to have a notable impact on inflation. Moreover, lending expansion is largely driven by loans issued at reduced rates under various subsidised programmes. Their terms are not very sensitive to monetary policy. On the contrary, the higher is inflation, the more attractive these programmes become for borrowers. The portion of such loans in the overall bank portfolio expanded at least two times over the past two years, now approximating 10%, according to our assessments. As the key rate has a weak impact on the demand for such loans, we need to maintain tighter conditions for all other borrowers who make the majority.

The key rate increase is influencing the trends in the deposit market slightly more actively than those in the credit market. Beginning from the middle of last year, households’ propensity to save has edged up somewhat. However, this process is still slow, which is mostly associated with the simultaneous rise in inflation expectations. Another reason is that deposit rates are growing diversely across the banking sector. Accordingly, to ensure the required rise in average deposit rates, we also need a more considerable increase in the key rate.

As regards risks, proinflationary ones prevail and have even become stronger.

Firstly, disruptions in production and logistics chains might remain for a longer period. During the pandemic, restrictions and structural shifts in production chains entailed a temporary, yet substantial rise in companies’ costs. This is the so-called shock of higher costs that will gradually diminish contributing to a slowdown of inflation. Our October forecast assumed that the impact of 40% of the transitory factors that had accumulated since the outbreak of the pandemic would abate in 2022. In our today’s forecast, we lowered this estimate to 20%. Moreover, there is a probability that this process will be slower or that it will not change notably. This is a major proinflationary risk.

Secondly, due to high inflation, many central banks are accelerating monetary policy tightening. Over the medium-term horizon, this will slow down inflation globally. However, in the short run, this might become a proinflationary factor for emerging markets. As regards external conditions, there is a probability of a further rise in prices for raw materials and energy commodities, as well as a range of other products, including food. Geopolitical risks have intensified as well.  In order to mitigate all these external risks, the Bank of Russia might need a stronger monetary policy response, all else equal.

Thirdly, another factor raising our concerns is the situation in the labour market, namely increasing staff shortages. Companies’ competition for labour resources will increase. This limits the pace and generally the potential of supply to quickly adjust to soaring demand. When labour costs rise, but labour productivity does not improve accordingly, this puts upward pressure on prices.

Disinflationary risks are weak over the forecast horizon. 

I will now speak about our future decisions.

I would like to remind you that we forecast inflation to equal 5–6% this year and return to its target in the middle of next year. I would like to stress straight away that this does not mean that we are less committed to our target. Are we able to bring inflation back to 4% by the end of this year? The answer is no if we want to avoid a recession. For this, we would need a shock increase in the key rate, which would threaten both the sustainability of economic growth and, possibly, financial stability. Furthermore, this would decrease inflation below the target next year. A balanced decision is gradual disinflation that will return inflation to the target without creating any risks for steady economic growth.

According to our estimates, for monetary policy to be well-balanced, the range of the average key rate should be 9–11% p.a. this year, 7.5–9% p.a. next year, and 5–6% p.a. in 2024.

With this forecast, we cannot say for today that the cycle of key rate rises has completed. We hold open the prospect of further key rate increase at the upcoming meetings. We will closely monitor how quickly the steady components of inflation will slow down. Subsequent monetary policy normalisation will largely depend on the pace of a decline in inflation expectations and a weakening of supply-side proinflationary factors. We will take further steps considering the incoming information, but today we tend to believe that the reduction in the key rate will be slower and take a longer period than its rise over the past year.

Thank you for your attention.

Q&A for the Media

QUESTION from Reuters:

How does the Bank of Russia estimate the range of the neutral rate at the moment? When does it plan to resume interventions in the FX market? And another question, please. Is the decrease in the growth forecast for 2023 the result of a more significant tightening in 2022, that is, the cost of combating inflation?


As regards the neutral rate, we have not changed our estimate of the neutral rate as of today. It is 1–2% in real terms and 5–6% in nominal terms. However, due to the current circumstances I have mentioned earlier, the shorter-run neutral rate is most probably closer now to the upper bound of the range. Of course, the neutral interest rate is also influenced by future developments in the world economy, changes in the global neutral rate, which is most likely also growing, as well as country risk premiums. I think that we will analyse the neutral rate once again in a while and decide whether it should be revised. As of today, we have not revised it.

Speaking of the resumption of foreign currency purchases for the Ministry of Finance, we have suspended these operations. By now, we have not made any decision about when to restart these purchases. We will certainly announce this in advance, before the actual resumption of purchases. It is possible that, as previously in 2019, we will first restart regular purchases and will then carry out the suspended purchases in addition to the regular operations.

Such a decision will be made depending on our assessment of the situation in the market, its volatility, and liquidity. I would like to emphasise once again that this will not depend on the exchange rate in any way.

As regards the forecast of GDP for the entire forecast period, as you know, there have been several determinants. First, the actual growth since 2021 has turned out to be above our expectations, exceeding the upper bound of the estimated range. The upper bound of the range we forecast in October was 4.5%, whereas now the estimate is 4.7%. Considering the current changes in the forecast compared to October, the level of GDP will be approximately the same if we sum up the figures for 2021, 2022, and 2023 according to the previous forecast.

In other words, we assume that we will return on a balanced growth path in 2023. It is simply slightly different because, in our opinion, we considerably exceeded the trend in 2021.

QUESTION from TASS Agency:

When does the regulator expect a weakening of the pressure on prices? Can this happen in the first half of the year? Do you expect any short-term spikes in inflation in the near future?

And another question, please. Has the Central Bank changed its view of the alternative scenarios of economic development we saw earlier?


I will start out with the second question about alternative scenarios. We have not revised them. We do this once a year when discussing monetary policy guidelines. We are going to revise them closer to autumn when we discuss our monetary policy guidelines.

As to the pressure on prices and where we are now, we actually expected at first that inflation would slow down in 2021 Q4 and then — at the beginning of this year. We cannot yet say that it is slowing down now. However, it is impossible to say that inflation is speeding up, and we cannot say that inflation is decelerating either. These are all fluctuations around the peaks.

We believe that monthly inflation will slow down already in 2022 H2 and, gradually by the end of this year, the seasonally adjusted current level of prices will lower close to our target.

However, there are certainly many factors of uncertainty in this regard. We emphasise the fact that it is currently unclear how the shock of costs will impact the situation. Of course, all this will influence inflation. Inflation expectations will also affect inflation. We will be monitoring all these factors. There are many uncertainties. Nonetheless, I would like to reiterate that our monetary policy is aimed exactly at decelerating inflation and returning it to our target.

QUESTION from Interfax:

What key rate decisions did the Board of Directors consider today? Was it a rather broad range of decisions? Did you discuss non-standard 125 and 150 basis points?

And another question, please. The Government has nominated Sergey Shvetsov who is leaving the Bank of Russia, as we know, to Sberbank’s Supervisory Board. Last year, the Government nominated Sergey Ignatiev. Does this mean that the Central Bank will not have a representative in Sberbank’s Supervisory Board and what is the reason for this decision? Is Mr Ignatiev going to leave the Bank of Russia?


As regards the decisions we considered today, the range of possible decisions was actually not very wide. Namely, we focused on two options: an increase in the key rate by 100 and 150 basis points. Finally, we decided that this should be 100 basis points given that there are many uncertainties and that our monetary policy should remain flexible to promptly respond to changing circumstances and incoming data. However, we actually focused on these two options.

Speaking of HR decisions, we normally announce them when they are approved. Sergey Shvetsov will represent the Bank of Russia in Sberbank’s Supervisory Board.


You have used the wording ‘an overheating of the economy’ several times in your statement today. Would it be correct to say that, in the Central Bank’s opinion, this is an overheating of the Russian economy that has currently become the main reason for high inflation, and not imported inflation or accommodative monetary policy? When did this situation begin in the Russian economy?

And which is important, should we perceive this as a tightening of the signal and is this increasing the probability of a further policy tightening, specifically by another one or even 1.5 percentage points in March?

One more question, if I may. The Bank of Russia’s press release says that short-term proinflationary risks have intensified due to volatility provoked by geopolitical events. Can you estimate how has the current aggravation of geopolitical tensions influenced price growth and, accordingly, the Central Bank’s key rate decision? What are the channels of this impact and to what extent the inflation rate, which remains high despite the policy tightening, is driven exactly by the geopolitical situation?


You have asked a lot of questions. I would start out with the overheating. Russia’s economy has bounced back rather quickly, that is, coped with the decline that happened during the pandemic sufficiently fast. In order to avoid an overheating in the future, it is critical to ensure that the growth rate of the Russian economy is close to its potential. However, it continued to expand at a pace considerably above the potential. This is evidenced by, among other things, the inflation rate, which is definitely one of the indicators, and the situation in the labour market, which is the second indicator.

Speaking of the impact of imported inflation on domestic inflation, you see, if imported inflation had not translated into inflation expectations and companies’ opportunities to pass through their higher costs spurred by imported inflation to prices, which they can do owing to high demand surpassing supply, we would have considered imported inflation to be a temporary factor not requiring any monetary policy response. However, inflation imported through both the inflation expectations channel and these opportunities to pass through higher costs to prices because of demand exceeding supply, which is a characteristic of domestic demand, is becoming a steady factor.

It is quite difficult to separate these factors sufficiently correctly, but we will ultimately do this. Approximately in April, we make such an analysis as of the end of the year.

As regards monetary policy tightening, although we have been raising the key rate (last year, we increased it by a total of 425 basis points), monetary conditions remained accommodative due to higher inflation and inflation expectations. As we have been increasing the key rate, monetary conditions have been probably becoming less accommodative. According to our analysis, we have moved to the neutral rate zone only now.

The indicator of this is the dynamics of lending. Last year, lending was expanding increasingly faster and at a quite high pace. To lower inflation, we needed to shift temporarily to the zone of tight monetary conditions. Of course, as compared to the previous meeting of the Board of Directors, we currently believe that the room for further key rate rises is more significant now. However, the actual increase will depend on multiple conditions that are still uncertain today and we will analyse them at every meeting of the Board of Directors.

Speaking of geopolitical factors, they do affect the country risk premium. We could see that yields on federal government bonds have responded to this ‘geopolitical premium’. Yields on federal government bonds largely impact the related interest rates. Therefore, this channel of influence does exist and, when we made our decision on the key rate, we certainly factored in these risks as one of the elements of external risks. These external risks are different, but this is one of the factors.

QUESTION from Bloomberg:

This is already the second consecutive increase in the key rate by 100 basis points. Does this mean that this is a normal pace in the current situation? Are you going to consider a rise by another 100 basis points as the main option in March as well?

And another question is about foreign currency purchases. What time horizon, how many months do you imply talking of the restart of these purchases? Is this one month, two months? How long should the exchange rate remain approximately the same for you to make a decision on the resumption?


Speaking of the pace of the increase, as the situation might change rather quickly in various ways, it is quite difficult even to determine what pace should be considered standard. However, in the current conditions, it is possible to say that the pace of 100 basis points can be considered not as non-standard as we believed before. Moreover, it is quite probable that we will need such increases further. I would like to reiterate that we discussed today not only the option of 100 basis points, but also 150 basis points.

As regards the restart of foreign currency purchases. You have asked how long the foreign exchange rate should remain stable for us to resume foreign currency purchases. I would like to emphasise once again that this depends on fluctuations of the exchange rate, rather than its level. This depends on our estimate of overall volatility and the market which is assessed considering not only exchange rate volatility, but also the depth of market liquidity, and we will make such a decision.

We assume that we will extend the suspended purchases over a longer period, as we used to do previously. We will extend them so that they have the lowest possible impact at least on short-term market trends. We will estimate the period for extending these purchases. This will also depend on how long this pause will last and what funds will be accumulated as the suspended purchases. Of course, we will carry out a comprehensive assessment.

I would also like to say that one of the assumptions of the forecast when we adjusted it was the dynamics of how the suspended purchases will be resumed and performed. The forecast assumes that the suspended purchases will be carried out until the end of 2023.

Nonetheless, I would like to stress that this is yet a model-based assumption, and not a decision. Our actual decision may be different, but currently the model provides for this pace.

QUESTION from RIA Novosti:

Inflation in Russia continues to accelerate for several consecutive months. When will inflation reach its peak, in the Central Bank’s opinion? What might be the level of this peak?


As regards the peak of inflation, the seasonally adjusted monthly price growth rate passed the peak in October. Contrastingly, annual rates, statistically measuring price growth over the last 12 moths, are at their peaks at the moment. We do not expect inflation to surge. However, the trend has not reversed yet and, therefore, we cannot say for sure that there is any steady slowdown of inflation.

Inflation is approximately at its peaks. We expect it to decelerate by the end of Q1 or in Q2, but it will only be possible to talk about a downward trend slightly later when we are confident that these movements are steady.

QUESTION from Kommersant:

Good afternoon. As I can see, almost all are actually asking the same question, just putting it differently. I will also try to ask it in my own way.

In the Monetary Policy Report released in autumn, you described alternative scenarios deviating from the baseline one. If you say now that inflation and the overall situation are probably beyond the baseline scenario, what is your opinion about our current position relative to all these scenarios? You described several of them.

And another question, please. If the Bank of Russia insists that the equilibrium level of the key rate is 5–6% per annum (whereas the key rate today is 9.5%), what is the current correlation between the equilibrium level of the key rate and the neutrality and tightness of monetary policy? What should be the level of the key rate, all else being equal, for you to be absolutely confident that monetary policy is tight? How do you determine this?


Indeed, we have several scenarios. We prepare them for the Monetary Policy Guidelines, but later on, at the core meetings of the Board of Directors, we adjust only the baseline scenario. Our baseline scenario is more adjustable than the alternatives. As to the alternatives, we actually revise them once a year.

However, if we talk about where the baseline scenario is now and whether it is closer to the global inflation scenario, risk scenario, or disinflationary scenario, we have probably moved even beyond the global inflation scenario in some respects. The baseline scenario has thus moved more towards that trend.

As regards the level of tightness and neutral policy, first of all, you have mentioned that we insist that the neutral level is 5–6%, whereas I have said that we have not yet revised this range of the neutral rate equalling 5–6%. It might shift due to changes in the country risk premium and the estimate of the neutral level of global rates. We believe that this shift might be towards an increase in the level of the neutral rate, but we have not yet carried out such an analysis.

I would like to remind you that the neutral rate is a conventional value which is not given to us in sensation, that is, this is a sort of modelling. Furthermore, the neutral rate helps maintain inflation at 4% when inflation is close to 4%. However, when inflation exceeds 4%, it is critical for the key rate to be above the neutral level and to have a certain level of tightness.

This deviation from the neutral rate should increase the more inflation deviates from the target and the longer this continues. This forms inflation expectations. Currently, inflation has actually deviated from the target more than twofold.

It is essential for us to have positive real rates. We will assess whether monetary conditions are sufficiently tight not only judging by how much real interest rates on loans and deposits of certain maturities are higher than the neutral rate, but based on a whole range of indicators, including, among other things, the dynamics in the credit and deposit markets. In other words, this is everything that has an impact on households’ and businesses’ saving, consumer and investment behaviour, which ultimately influences the level of inflation.

All these factors are the transmission mechanism. Hence, it is impossible to technically say that a particular increase in the neutral level will guarantee the inflation rate of 4%. It is necessary to analyse all these processes and the effect of the transmission mechanism.

I would like to remind you that it has a time-lagged effect as many people tend to expect that inflation should drop immediately after a key rate increase. This does not happen because the effect of this mechanism is actually extended over time. It needs several quarters to manifest this effect. Therefore, due to these lags, we expect our decisions on monetary policy tightening to achieve their fullest cumulative effect in 2022 H2 and 2023 H1.

QUESTION from TV channel Saint Petersburg:

You have repeatedly said, including today, that inflation has been rising, including because demand surpasses supply and manufacturers are forced to raise prices in order to limit this demand somehow, whether in the car market or in the real estate market. However, consumers find themselves in a certain trap as well. Prices are soaring, and people cannot understand what they should do in this situation to avoid depreciation of their savings, and thus they decide to purchase goods.

How should consumers behave in such a situation not to push up inflation even more?


This is a good question. You know, first of all, it is not that manufacturers were forced to raise prices, but rather they have opportunities to increase prices when demand exceeds production capacities (if we consider not the capacities of one particular enterprise, but the overall capacities of all enterprises manufacturing the same type of products, for instance). They may raise prices without fearing to lose their market share or consumers who might prefer other manufacturers because the overall potential to ramp up output is limited.

You are absolutely correct saying that when consumers are wary of losing their money due to anticipated price increases (which actually involves elevated inflation expectations, that is, people fear that prices will rise and that they might lose their funds because of this future price growth), of course, people are ready to purchase goods immediately even at higher prices. This is exactly what we call excess demand that does not ensure higher consumption.

It does not boost consumption and output or speed up the increase in gross domestic product, but only fuels price growth. This is what we call excess demand and we are observing it now. Actually, speaking of the economy in general, consumers compete with each other for available supply, and prices will grow exactly to the level where demand matches supply. This is the only possible way. If there is such a mismatch, this means that prices will go up.

However, this would be completely wrong in this case to say that people are knowingly speeding up inflation. In such conditions when inflation and inflation expectations are high, consumers behave absolutely reasonably. In order to lower inflation, it is crucial to eliminate this weight of excess demand that creates inflationary pressure. The main way to do this is to make savings more attractive for consumers. In this case, people will not fear to save funds. To this end, deposit rates should be higher so that people, even if they expect inflation to be high, stay confident that deposit rates will preserve the purchasing power of their savings.

This is one of the key channels through which monetary policy influences the economy. This is exactly why we are now raising the key rate and will continue to do this until people become aware, as they were several years ago, that deposit rates will fully offset inflation risks for them.

What will happen in this case? Excess demand will turn into additional savings which, by the way, will expand the possibilities for long-term financing and corporate lending, while inflation will slow down and return to our target.

QUESTION from Izvestia:

Why not change the target considering the new reality associated with the pandemic and geopolitics?


You know what we think about changing the target. As far as I understand, you imply a higher target, rather than its decrease to the levels set in advanced and many developing economies. I would like to remind you that the target in inflation-targeting countries is below 4%.

We believe that this should not be done as, in the current conditions (and we can see this now as well when inflation exceeds a certain level and is above 4%), it adversely impacts the economy in general and incentives for long-term investment and long-term savings.

To tell the truth, the goalposts should not be shifted in the middle of the game. It is critical to maintain the target unchanged, especially when uncertainty is generally high. We believe this to be one of the anchors of our monetary policy.

QUESTION from Forbes:

At the end of last year, you said that you could not see such a scenario where the key rate might increase to double digits. Today, it has almost approached this level and the situation has altered dramatically. Can you now specify any reference point that you consider to be the peak of the key rate? When will it reach its peak?

My second question is as follows. Have you come to any consensus with the Government about the regulation of cryptocurrencies?


Indeed, we have changed our view of the key rate path as compared to the previous year. This is exactly what I said at the beginning. We have significantly altered our view of the situation and future prospects. Currently, the inflation forecast is high as well. You can also see that we have revised our forecast of the key rate. We forecast that the average key rate this year will be 9–11%, that is, the average key rate over the year might reach double digits. An average rate over the year does not imply a peak. We do not forecast any minimum or maximum levels and consider this to be reasonable since this is the annual average key rate that influences economic activity in general and economic agents.

As regards your next question about cryptocurrencies, as you know, we have expressed our opinion in the consultation paper we released. We appreciate that the Government has developed its own approaches and published them in the form of a concept. We believe that this will make our further discussion more transparent and understandable for society. However, I would like to emphasise that the Government did not discuss its concept with the Bank of Russia before releasing it. In our opinion, this discussion is yet to take place.

As you know, we see serious threats in the expansion, the development of the cryptocurrency market both for people’s well-being and for cash circulation, financial stability. Moreover, we see risks in this regard because cryptocurrencies can be easily used for illegal transactions.

The concept of the Ministry of Finance actually focuses on some benefits from the legalisation of cryptocurrencies, and we are concerned about this reasoning. We are going to discuss it.

Moreover, we are concerned even more because the Ministry of Finance has not given any answers yet regarding the risks we emphasise. Nobody can negate these risks and nobody can understand how to mitigate them.

We have forwarded our opinion about the concept of the Ministry of Finance to the Government. The main conclusion is that the approaches proposed by the Government currently cannot eliminate the risks we can see in this area, but only provoke new threats.

As you know, one of the key issues in the concept is that the level of people’s participation in this market is already high and, hence, it should be legalised. In my opinion, this high level of citizens’ participation in this market is exactly why we need to make a decision as soon as possible. These risks are considerable. If we cannot say that these risks do not exist and we do not know how to mitigate them, we definitely need to do everything possible to reduce people’s participation in this market. As compared to other countries, the level of this participation is high.

Actually, the question is whether we want to increase or decrease the number of people participating in this market. The Central Bank firmly believes that it is crucial to reduce this number as there are multiple risks.

I would like to illustrate this with the example of foreign currency mortgage lending, which is probably quite familiar to many of you. People were actively and enthusiastically raising foreign currency mortgage loans owing to the nominal interest rates (all this seemed attractive) being unaware of inherent foreign exchange risks they accepted. Of course, all this subsequently raised the question why this was not forbidden. Both the Government and the Central Bank had to settle these problems. Banks had to address a lot of issues as well. Nonetheless, the scale was much less significant than that with cryptocurrencies.

This is why I believe that this should be taken into account. Nobody has yet said how to address the risks existing in this area. This is a complicated issue.

There is still another problem with cryptocurrencies I would like to focus on that is crucial for us as the Central Bank. As you know, we have been counteracting illegal transactions in the financial sector, in banks for many years, removing the market participants that were consistently involved in money laundering and cash-outs.

Due to its nature, cryptocurrency will open up a new large channel for such illicit operations. Moreover, if the banking sector is engaged in this, as is proposed, this will become a new round of the involvement of all financial institutions in such operations. In my opinion, the argument that cryptocurrency legalisation will increase tax payments ignores the fact that, in addition to illicit transactions that can be conducted quite easily using cryptocurrencies, this will create conditions enabling tax avoidance in the economy in general. This should be taken into account as well.

Thus, there are many questions in this regard, but it is true that the Government has released its concept. Our consultation paper has also been published. I hope that we will carry out a meaningful discussion which will be understandable for society and everyone will have a chance to express their opinions and reasoning.

QUESTION from Frank RG:

I have two questions as well. The first one is about mortgage lending. The matter is that, despite multiple subsidised lending programmes, most loans are issued by banks at market interest rates that already now range from 10.5% to 12% or, when a borrower refuses to buy a life insurance policy, from 12% to 14%. As far as far as we understand, this level does not factor in your today’s decisions.

Obviously, banks will be unable to maintain the growth rate in the mortgage market we have been observing during the last two years. What is the Bank of Russia’s forecast about the expansion of the mortgage lending market in 2022?

And another question, please. As we can see, the divestiture of Russian assets in January is hindering M&A in the banking sector because, unfortunately, it has caused a revaluation of these assets. As for spring 2022, the Bank of Russia, in particular, was hoping to sell a blocking stake in Bank Otkritie. Back in November, you were collecting potential investors’ bids, as well as said that IPO was an advantageous procedure for selling. My question is as follows: is the Central Bank ready to change the selling period and procedure considering the situation we observed in January? What selling options do you now see as advantageous?


As regards mortgage lending, interest rates have really risen, but much less as compared to the increase in the key rate. Interest rates under subsidised programmes have edged up only slightly and market rates — a little more. However, this growth is less considerable than the key rate increase. Mortgage lending is expanding rather quickly. There are certainly hidden payments, including for insurance. We have made our proposals about possible changes in this system. Interest rates on mortgage loans offered to consumers can actually be higher, including as a result of forced insurance at rather high rates.

We have developed a relevant concept and hope to discuss it with the Government in order to reduce the total cost of credit owing to this part that should also include insurance payments.

Lending growth rates are now unbalanced as well. In our opinion, these growth rates were a key driver of higher housing prices, which is why they should be lower. Our policy and, I hope, subsidised programmes will become more targeted (which is already happening now) and large-scale programmes will be replaced for targeted ones, which will gradually result in more balanced growth rates in mortgage lending.

Over 2021, housing mortgage lending surged by nearly 27%, which is a very high growth rate. We expect that mortgage lending will expand by approximately 15–19% in 2022, 14–18% in 2023, and 12–16% further on. These are high growth rates, but we believe that they will be more balanced and enable a large number of people to raise such loans, but without accumulating risks for them personally and for their families.

Speaking of Otkritie, we are really making preparations for selling this bank. Our strategic goal is to sell the entire equity stake in Otkritie. We have received several notices from strategic investors interested in the purchase who expressed their intent to take part in the procedures. The transaction itself is rather complicated, its amount is large, and we need time to study these proposals in detail, including to compare them relative to the option we consider advantageous, which is public offering.

Public offering remains one of the options for divestiture. Of course, we take into account the market situation as it influences the transaction price.

QUESTION from Khabarovskiye Vesti:

I would like to continue the topic of mortgage lending, but with account of the regional agenda. The Far East is implementing subsidised programmes, including the Far Eastern Mortgage programme where the minimum interest rate today is 0.1% per annum. This has caused a surge in the number of transactions, on the one hand, and a considerable, or even unprecedented, I would say, rise in housing prices, on the other hand. My question is as follows: does the Bank of Russia actually have any instruments to ensure a balance between demand and supply, while preventing such a serious increase in housing prices, including in the Far East in particular?


The critical thing here is housing affordability for people to have more opportunities to purchase houses with their current incomes. This is certainly influenced by the cost of credit, but the impact of housing prices can be just as important or even critical in some cases. Therefore, these factors should be considered in totality. Sometimes, an interest rate seems to be lower, whereas housing affordability in some localities may actually decrease at this moment, if prices have soared and wiped out the entire effect from a lower interest rate.

As regards the Central Bank’s instruments that may influence the affordability of mortgage loans for people ensuring housing affordability, the critical issue is not just the affordability of mortgage loans, but rather the affordability of housing.  

To begin with, the cost of long-term loans, and mortgage loans are long-term ones, is mostly influenced by yields on long-term bonds, rather than by the key rate. The key rate actually impacts the cost of short-term funding, current liquidity available to banks, and deposit rates for banks. Contrastingly, long-term interest rates rather depend on banks’ expectations, including about inflation and country risk. Therefore, our policy which is associated with key rate increases and a higher cost of short-term funding and current liquidity is aimed at maintaining low inflation and moderate long-term interest rates.

As we can see, long-term interest rates still respond less considerably to the level of the key rate if market participants are confident in the Central Bank and its ability to bring inflation back to the target. We know this from the experience of the last, let’s say, two years. As I have already said, the key rate increased by a total of 4.25 percentage points in 2021.

 Conversely, the average mortgage rate, if calculated from its lowest level, edged up by less than one percentage point, namely 0.8 percentage points. Of course, this includes subsidised programmes. However, even if we leave out subsidised mortgage lending programmes, the mortgage rate in the secondary market still rose much less than the key rate, specifically by two percentage points.

I certainly cannot agree with the argument that these are higher interest rates on mortgage loans that are pushing up prices. As I have already said, this is quite the opposite when it comes to housing prices, and we could observe this correlation last year. When the mortgage rate goes down, that is, mortgage loans become more affordable, but are not supported by an adequate expansion of housing supply, this causes a rise in housing prices, rather than their decline. In my opinion, a clear evidence of this was the situation observed last year. This is exactly why an increase in the key rate, a tightening of monetary policy cannot cause an additional rise in housing prices, but will rather limit this growth of housing prices. This will improve the affordability of housing.

QUESTION from public TV and radio company Kaliningrad:

Should we expect a further increase in mortgage rates and how will it impact the real estate market? Should households planning to purchase housing hurry up?


I have just said about mortgage rates. Our policy aims to maintain affordable, moderate long-term interest rates and prevent their growth following the acceleration of inflation. To prevent a rise in long-term interest rates even when inflation speeds up, it is essential that our monetary policy decisions make all market participants confident that inflation will be lowered and brought back to the target. Hence, we hold that, after a period of monetary policy tightening involving an increase in nominal interest rates in the economy, we will gradually return to the neutral range of the key rate and, accordingly, long-term interest rates will be stable and moderate.

As regards purchases, it is necessary to assess the situation comprehensively, including whether housing prices are more advantageous now or will decrease in the future, and decide whether to hold bank deposits or use these funds to purchase housing and raise a loan in addition which will involve interest payments.

I would like to reiterate that, when making such decisions, people should remember that the Central Bank is doing everything possible to bring interest rates down as inflation returns to the target. This target is much lower than the current inflation rate.

QUESTION from Gazeta.ru:

Does the Bank of Russia observe an increase in the portion of consumer loans raised by borrowers with high 80+ payment-to-income ratios? In October 2021, this portion reached 21%. Has it increased or contracted by the moment and how large is it now? Is the amount of such loans a matter of concern for the Central Bank?

And another question, please. Is there any correlation between Artem Sychev’s resignation from the Cenrtal Bank and the case of Suchkov?


As regards the second question, I can say straight away — none.

Speaking of the portion of high-risk loans, that is, loans issued to borrowers whose payment-to-income ratios exceed 80%, I do not have recent data at hand. We are going to analyse these figures. Probably, it is now too early to make any conclusions even based on the data for December and January since it was in January when we introduced another set of macroprudential buffers. We need to assess how the situation is changing and whether these measures are adequate. Before January, the portion of loans with high payment-to-income ratios was unfortunately growing. We should analyse whether the measures implemented in January will be sufficient. We are preparing, doing everything possible to introduce macroprudential limits since 1 July in order to be confident that the portion of potentially bad loans with high payment-to-income ratios does not increase.

QUESTION from Vedomosti:

How significant should be the rise in banks’ deposit rates to ensure a sufficient increase in the propensity to save?


It is impossible to specify any exact level of the nominal interest rate needed for this purpose as this depends not only on the assessment of current inflation and our inflation forecasts, but also on people’s inflation expectations. They compare deposit rates, let’s say, for one year against their inflation expectations which are high. We can see that, although they lowered over the last month, they are still very high. Of course, this does not allow people to assess deposit rates as positive in terms of their dynamics. The level of these interest rates is currently not enough for deposit rates to be sufficiently attractive. Nonetheless, we can observe, as I have already said, a certain positive upward trend in time deposits. Last year, there was a considerable inflow of funds into current accounts where interest rates were zero or minimum.

Today, we can see that people started to reverse to time deposits. It is essential for us to maintain this trend. We assume that this trend will continue considering our today’s decision.

QUESTION from Fomag:

I have two short questions. There has been a lot said about mortgage lending, but nothing about mortgage loans without a down payment. Is this good or bad in the context of the development of a possible mortgage bubble? My second question is related to high oil prices. We are now observing high oil prices above 90 US dollars per barrel. Is this good or bad with respect to inflation and other factors?


As regards mortgage loans, this is definitely not good when there is no down payment. This is not simply bad, but rather very bad. This is largely what provoked a crisis in the USA in 2007 when mortgage loans were issued to people without savings, while a person’s ability to save funds for a down payment is a good indicator which can be proven statistically. This indicator demonstrates a person’s ability to service this loan and proves that the person has sufficient income to raise this loan.

The portion of loans without a down payment is minor in our banking system. As far as I remember, it is less than 1%. Nevertheless, it is important that the amount of a down payment is sufficient because even a low level of a down payment might cause these problems. In this context, the correlation with defaults is quite high. This is why our system of macroprudential buffers is aimed exactly at discouraging banks to issue loans with a low down payment.

Speaking of high oil prices, they might have a disinflationary impact in the short run, including through the foreign exchange channel, because, although the fiscal rule removes a considerable portion of this effect, a part of foreign currency revenues remains in the economy. However, in the medium and long term, such prices are generally a proinflationary factor, and this is precisely what we take into account when we review our forecast. In our adjusted baseline forecast, the estimate of oil price changes was raised by five US dollars per barrel over the entire forecast horizon. Overall, as nearly all commodity prices, higher oil prices are rather a proinflationary factor for our economy.

QUESTION from Interfax:

I have two questions. The first one is rather crucial. The year 2022 is quite important for you because your powers as the Bank of Russia Governor end on 24 June. As we know, until the end of March, President Putin should nominate a candidate for the post of the Bank of Russia Governor to be approved by the State Duma. Has there been any discussion with you about your third term in office and are the personnel changes made in January connected with your plans to head the Bank of Russia for another five years?

My second question continues the topic of cryptocurrencies. If the Government’s concept wins and cryptocurrencies are legalised somehow, what will be the actions of the Central Bank in this case? Will it just accept this decision or does it have a plan B?


As regards the personnel changes in the Bank of Russia, they are not connected with my plans in any way. I would prefer not to give any comments about me right now.

Speaking of cryptocurrencies and accepting a different concept, we will make everything possible to convince the Government and explain our reasoning in even greater detail since we can see serious risks in this area. I strongly hope that common sense will ultimately prevail. Therefore, we have no plan B for this.

Thank you very much for your attention and your questions. Have a nice day.