Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting on 20 December 2024
Good afternoon,
Today, we have made the decision to keep the key rate at 21% per annum.
Tight monetary conditions that have formed in the economy are to ensure a slowdown of inflation in the next few quarters. Since the October meeting of the Board of Directors, monetary conditions have tightened even more than was implied by the key rate increase. This additional tightening is associated with, among other things, banks’ response to the regulatory measures taken by the Bank of Russia. Consequently, lending growth notably slowed down in November. We will need some time to assess how steady this deceleration in lending is and how the economy is adjusting to the new conditions. Therefore, we are taking a pause in raising the key rate. We will assess the need for a further key rate increase at our upcoming meeting. I would like to stress that due to the considerable deviation of inflation from the target monetary conditions should nonetheless remain tight for a long period in order to secure bringing inflation back to 4%.
I would now dwell on the reasons behind our today’s decision. This time, I will explain them in the order our key rate decisions are transmitted to inflation. At first, the key rate translates into monetary conditions, then it influences economic activity, and ultimately it impacts inflation.
Firstly, I will speak about how monetary conditions have changed since our previous meeting.
Pricing a loan, banks rely on either the key rate level if it is a floating rate loan or the expected key rate level if it is a fixed rate loan. Further, banks add a certain a spread. Before the October key rate meeting, the spread between the key rate and banks’ interest rates averaged about
What are the reasons behind such significant changes in monetary conditions? This has been largely because of our regulatory measures we announced in advance that were needed to enhance banks’ financial resilience.
I would like to remind you that, in 2022, the Bank of Russia introduced a number of regulatory easing measures. They were required to ensure bank lending to the economy on a continuous basis and in adequate amounts, despite the sanctions and the freezing of Russia’s foreign assets. These measures have helped prop up economic activity during the acute phase of the crisis. However, such easing measures cannot be permanent — they are implemented for a short term to address crisis issues. In 2023 H2, we announced the start of their phasing-out. Nevertheless, as domestic demand was expanding, banks continued to actively increase lending. Yet, the growth of the loan portfolio was not accompanied by a comparable rise in banks’ capital and highly liquid assets. In order to avoid excessive accumulation of risks, we have been consistently raising the requirements for banks’ capital and liquidity. This policy will continue to improve the financial sector’s resilience and will not depend on the key rate level.
We employ a number of different tools depending on the purposes: some are aimed at ensuring financial stability, while others help achieve price stability. That said, when making our monetary policy decisions, we take into account decisions in the banking regulation. I would like to reiterate that the banking regulation measures are not intended to achieve monetary policy objectives — we have the key rate for this. Nevertheless, when making our key rate decisions, we do factor in the consequences of changes in the banking regulation, including their effect on lending activity.
After the phase of the rapid increase in lending, banks are now moving on to a stage of using their capital and liquidity with more prudency and reason. Further on, lending growth pace will depend on, among other factors, banks’ capabilities to build up capital. Accordingly, the expansion of lending may be expected to be slower next year, while banks are to shift towards more conservative approaches to assessing borrowers’ risks. We can predict this judging by banks’ moderate plans to increase their loan portfolios next year.
The effects of the monetary tightening started to manifest themselves in November 2024. The growth of the overall loan portfolio considerably decelerated. Moreover, the expansion of the corporate loan portfolio slowed down for the first time over a long period. The retail loan portfolio has remained virtually unchanged for two months now. According to high-frequency data, credit activity remained moderate during the first weeks of December.
Simultaneously, savings have continued to go up, driven by high deposit rates. Our today’s decision will support the current level of saving activity.
Secondly, the economy.
In October and November 2024, economic activity remained high, propped up by growing domestic demand, including household consumption. This was largely the result of the accumulated effects of the fiscal stimulus, high credit activity over previous months, and increased household incomes. High-frequency indicators suggest that the situation is gradually changing. Specifically, companies are setting more moderate targets for output, postponing or more carefully selecting investment projects, and reducing their borrowing plans for the next year.
As reported by the Bank of Russia’s regional branches, there are signs of cooling in construction, coal production, and metallurgy. Furthermore, there is a number of enterprises that have reduced the demand for labour. As a result, we observe a more active reallocation of workers from some industries to others that are still experiencing considerable staff shortages. This process is alleviating the pressure on the labour market.
Thirdly, inflation.
Inflation has accelerated in recent months, largely because of transitory factors. In particular, there has been a rise in the growth rate of prices for some food products, especially vegetables. This was associated with the bad weather that notably worsened the harvest of some crops. Another important contributor to the November statistics was the increase in the telecommunications and transportation tariffs.
However, the high figures of October—November and the first weeks of December were generally the result of domestic demand that had been soaring during previous quarters. Factoring in the time lags, this overheating has been translating into current inflation, primarily its underlying components.
Inflation expectations continue to exert additional pressure on prices. Households’ and businesses’ inflation expectations are largely backward-looking, that is, are affected by the price dynamics observed in the past. Consequently, high inflation has a self-reinforcing effect through inflation expectations. In other words, high expectations contribute to elevated demand entailing high inflation, which in turn further increases inflation expectations. In such a situation, even one-off factors might become persistent. In December 2024, the growth of households’ and businesses’ inflation expectations was also affected by the ruble weakening.
When making our monetary policy decisions, we rely on the forecast of inflation and changes in its drivers. We are observing a notable slowdown in lending growth, which will have a significant disinflationary effect. Due to the accumulated inertia of inflation and the time lags of monetary policy transmission, this effect will be manifesting itself gradually. We expect that inflationary pressures will start to weaken sustainably as the effects of tight monetary conditions increase.
Briefly about external conditions.
The main trends in the world economy have remained unchanged. Global economic growth has been generally decelerating. Export dynamics in 2024 Q4 have been slightly weaker compared to steadily high imports. Coupled with another package of sanctions, this negatively affected the ruble exchange rate in November. The actual tightening of monetary conditions and the accumulated effects from our policy will ensure a more balanced growth rate of imports in the future.
I would now dwell on the risks to the baseline forecast.
Proinflationary risks are still our main focus. In the first place, high and, moreover, still rising inflation expectations might extend the period needed to bring inflation back to the target. The longer inflation deviates from the target and the longer it stays at high levels, the longer the period of high interest rates should be for economic agents to restore their confidence in price stability. Secondly, the risks related to the labour market are still a key constraint hampering economic activity normalisation. Thirdly, the risks of trade wars and a more notable slowdown in the world economy have become slightly higher. This group of risks also includes a possible rise in geopolitical pressure.
The key disinflationary factor is a more substantial deceleration of lending growth than assumed in our baseline scenario, which might be facilitated by, among other things, banks’ willingness to pursue more conservative lending policy. This might result from both tougher capital requirements and an increase in banks’ lending standards. A major point of uncertainty is how the economy will be adjusting to the new conditions. When making our future decisions, we will scrutinise the influence of these factors on the economic environment.
Winding up, I would like to speak of our future decisions.
Today, the key rate is rather high and, combined with the banking regulation and more conservative strategies preferred by the banks, it means considerably tightening monetary conditions. We will need some time to assess all the effects of the current level of monetary tightness. In February 2025, we will be choosing between two options. We will either make sure that monetary conditions are sufficiently tight or return to discussing a key rate increase if the current overheating of demand persists while lending starts to expand again. Our main objective is to achieve price stability within a reasonably short period and we will take all necessary measures to do this.
Thank you for attention.
Q&A for the Media
QUESTION from TASS:
My question is traditional. What were the options of the key rate decision the Board of Directors discussed today?
ELVIRA NABIULLINA:
We considered three alternatives: keeping the key rate unchanged and raising it to 22% or 23%. The discussion was about what factors and data should be considered more important at the moment.
The first factor is high inflation and increased inflation expectations. On the other hand, credit activity has already slowed down notably, which is obvious from the statistics for both November and the first half of December. In addition, monetary conditions have become even more restrictive due to a contraction of credit supply following the banking regulation normalisation. Moreover, there is evidence of slower growth in demand. Following the deliberations, the Board of Directors concurred that, in terms of a forward-looking policy, a slower increase in credit was a more important sign.
If this judgement is reconfirmed by the moment of the next meeting in February, we will be able to state that monetary conditions have become sufficiently restrictive.
QUESTION from Interfax:
The decision to keep the key rate at 21% is very surprising. It has sparked a discussion among analysts wondering whether the reason is your communication with the market or some external pressure, which is more interesting, given the recent criticism about your policy and high interest rates. What would you say to this?
ELVIRA NABIULLINA:
You know, our policy is criticised especially sharply during both periods of high interest rates and cycles of key rate increases. I guess that you have been observing this for many years already. Our decisions rely on our assessment of the situation and our forecast. By the way, preparing this assessment, recently, we were communicating rather intensely with both banks and real economy companies to get a clearer picture of what was happening in the economy.
Speaking of communication, we will analyse what else we can improve in this area. This is actually a matter of concern now. Communication of our decisions is crucial. This is exactly why we are now explaining the logic behind our actions.
I would like to remind you that, at our meeting in March, we singled out four so-called triggers for a key rate increase or decrease.
As we can see, there is particular attention to, a focus on current inflation and inflation expectations. These are significant parameters. Nevertheless, I would like to reiterate that the slowdown in lending, including consumer lending, was also an important factor for us. What is happening? The labour market is becoming less tight. At the moment, we cannot yet say that this is a distinct trend. However, there are some signs already that the demand for labour has stopped growing in many industries, which is also confirmed by our business surveys. Furthermore, we emphasised that there were no proinflationary risks on the part of the budget, external conditions.
Therefore, it is essential to consider the totality of the factors. I would like to remind you that, through the key rate, we influence aggregate demand, thus impacting credit activity, and the dynamics of the latter have notably changed. I believe that you can observe this as well. According to the November statistics, the expansion in lending decelerated, and this is the factor that should be taken into account.
ALEXEY ZABOTKIN:
A significant aspect is that this is a rare instance when the Bank of Russia had a somewhat broader scope of data, in particular on current credit activity and businesses’ and banks’ plans for the next few months and the next year. Indeed, over the past six to eight weeks, we were communicating very closely with both real economy companies and banks. We can see that both our October decision on the key rate, which additionally tightened monetary conditions, and the autonomous factors associated with the regulation, which more considerably limited banks’ capabilities to increase their loan portfolios, have made both banks and borrowers substantially shift their plans to expand loan portfolios.
The statistics as of 15 December (these are high-frequency monetary statistics that we do not publish) show a considerable slowdown compared to both November and the periods when inflation was close to 4%.
QUESTION from Kommersant:
In recent months, all branches of government have apparently consolidated their efforts to limit the inflation rate, at least this has been demonstrated. My question is as follows. As of the beginning of the next year, we will see a combined effect of several rather powerful instruments, specifically a reduction in budget expenditures and budgetary subsidies and the Bank of Russia’s limits on lending to over-indebted borrowers, etc. Have you assessed the risk that their combined effect on the economy might be stronger than expected? Are there any tools to quickly offset this?
ELVIRA NABIULLINA:
Indeed, given the time lags of various policies, it is now time for all the measures taken earlier — including the actual monetary policy tightening from mid-2023 and the effects of the cancellation, which was generally scheduled, of the easing in the banking regulation – to have the maximum impact on inflation. In addition to the cancellation of the easing in the banking regulation, announced in advance, we introduced a number of innovations with regard to macroprudential add-ons, but we notified banks thereof as well for them to have time to adjust to the changes.
I would like to stress once again that the banking regulation measures do influence monetary conditions and their tightness, yet their purpose is different — they are intended to enhance the resilience of the financial sector. Nevertheless, they will indeed reach the maximum effect very soon. The objective of our policy is to avoid extreme scenarios. In other words, we need to prevent further overheating in the economy, cool it down, while avoiding its overcooling. This is why we are closely monitoring the situation and have intensified the exchange of information not only with the Government but also with businesses and banks in order to comprehend what has happened by the moment and how they are going to respond to the totality of these factors.
QUESTION from OrelGrad (Orel):
The Bank of Russia was raising the key rate for over a year. Three or maybe even six quarters have nearly passed, but inflation is not decelerating so far. If the key rate increase fails, does the Bank of Russia have any backup plan to tame inflation?
ELVIRA NABIULLINA:
I firmly believe that the key rate does work. If not for its increase, inflation would have been much higher. We explored alternative scenarios and, if we had kept the key rate, for instance, at the level effective from autumn 2022 to the middle of last year, namely at 7.5%, inflation would have risen by now not just to double digits – it would have been considerably above 20% or, possibly, even 30% because of rapidly growing inflation expectations. Moreover, inflation would have continued to accelerate.
However, the objective of monetary policy is not to lower inflation at all costs. Our objective is much more complex – we need to slow down the expansion of demand so as not to prevent the economy from ramping up its production capacities, its potential. Therefore, we are moving step by step to avoid any negative implications and, each time, we comprehensively assess the impact of our decisions on the economy.
Currently, we can see that, as a result of the key rate increase and the banking regulation measures, the growth of lending has already decelerated in all segments. If this trend in lending continues, this will be gradually influencing both demand and inflation.
Of course, everyone would like to see slower price growth as soon as possible, but the economy is now in an extraordinary situation. There are multiple factors weakening the effect of the key rate on inflation, and we are well aware of this. Hence, our backup plan is the key rate combined with patience.
QUESTION from RIA Novosti:
Ms Nabiullina, could you please say if the Central Bank is going to take any measures, in addition to the mortgage lending standard, in order to combat mortgage schemes? Do you have any information about new schemes, possibly fraudulent ones, used in the mortgage market? Does the Bank of Russia forecast any defaults among developers in the market and, generally, what are your forecasts with respect to the mortgage market?
ELVIRA NABIULLINA:
Mortgage schemes are still used, unfortunately. There is a variety of them, and they may change as well. While we are combating some of them, other types of schemes are invented. Regretfully, these practices do exit in the market.
Nevertheless, I would like to speak of the mortgage lending standard because we pin our hopes on it. Banks agreed with this mortgage lending standard and, above this, with the supervision standard, based on which we will be supervising banks’ compliance with the mortgage standard. It will become effective from April.
We believe that this will help reduce the scale of these schemes. However, this is not the only measure. In the near future, we will amend the regulation so as to increase the burden on the capital of those banks that apply schemes where people are first enticed by low interest rates and repayments that then surge suddenly. For cases where they rise by over 20%, we are going to introduce the requirement for increased provisions for such loans. This will be our first move.
Secondly, if these schemes are not abandoned, we will discuss the following approach with market participants: the mortgage lending standard will generally require normal provisions, while all other schemes will need increased provisioning. I can understand that they want to prop up the demand for mortgages, yet this may not be done in a deceptive manner.
Speaking of forecasts, we will adjust our forecast for lending and mortgages in February. The current forecast is
As regards developers, we monitor the financial performance of the largest ones. As far as I remember, I have said already that the state of developers might vary. Specifically, there were those of them who were advancing organically, without increasing leverage, and those who were advancing quite aggressively, inspired by elevated demand, predominantly through an expansion of leverage. The latter are now in a challenging situation.
In my opinion, we might rather expect sales of some assets, redistribution in the market of developers.
QUESTION from Rossiyskaya Gazeta:
If I have grasped it, you mentioned the ruble depreciation among the proinflationary factors. In view of this, my question is as follows: don’t you think that the measures to stabilise the ruble exchange rate during periods of significant fluctuations are not as prompt as they should be? Would not it be better to prevent panic in the foreign exchange market rather than, later on, counter the consequences in the form of higher inflation?
ELVIRA NABIULLINA:
We believe that our operations in the foreign exchange market, other than those provided for by the fiscal rule, should be aimed at preventing financial stability risks and a market dysfunction.
What is a market dysfunction? This is a situation when devaluation expectations or any other factors nearly disrupt the supply of foreign currency in the market. However, we do not conduct any foreign exchange interventions because of a certain level of the exchange rate or even elevated volatility. Why? This is because we believe that the market should find an equilibrium by itself. If we start interventions at the moment of even elevated volatility, market participants will perceive the current exchange rate as artificial, that is, propped up by the Central Bank, which will then weaken further as soon as the Central Bank stops its interventions. This would fuel depreciation expectations and prevent the exchange rate from stabilising at a certain equilibrium level.
In our view, the ruble exchange rate will indeed be very volatile overall, and we can observe these fluctuations, but they are provoked by external restrictions. We do take into account this factor. This does not mean that the exchange rate volatility is not a matter of concern to us. Besides, there is some segmentation in the foreign exchange market. We are perfectly aware of this, yet we still believe that the exchange rate should remain floating as this will strengthen confidence that it is market-based.
The Bank of Russia should only intervene when there are really risks to financial stability.
QUESTION from Reuters:
Yesterday, during the broadcast of the Direct Line, President Putin spoke of the Central Bank several times. Could you please say if you had discussed today’s key rate decision with the President?
ELVIRA NABIULLINA:
I guess that the President gave the answer yesterday. I have nothing to add.
QUESTION from RBC:
My question is also about foreign exchange. Does the Central Bank observe a shortage of foreign currency liquidity in both the on-exchange market and the over-the-counter market after a large number of Russian banks, including systemically important ones, who had been actively participating in settlements for exports, were sanctioned at the end of November? Are there any risks of a shortage and what are they? Is it possible to predict that, after this round of the sanctions, the exchange rate will remain volatile for a longer period than after the previous rounds?
ELVIRA NABIULLINA:
In the first place, the ruble exchange rate is generally more volatile now than it used to be before 2022. After each wave of the sanctions, the exchange rate becomes more volatile. The extent of the increase in its volatility depends on the effect and scope of the sanctions.
In summer when sanctions were imposed on Moscow Exchange, which is a key element in our financial infrastructure, such elevated volatility persisted for about a month. Later on, markets tend to stabilise at certain levels, primarily in terms of the fundamentals – the balance of trade and the current account. Of course, we need to take into account that each round of the sanctions provokes an increase in the costs of international settlements.
The sanctions imposed in November exacerbated volatility as well. Nevertheless, we can see that the effects of volatility are weakening. Just as over the course of the previous rounds of the sanctions, most companies manage to adjust to the new conditions. However, we can certainly observe increased fragmentation in the foreign exchange market and growing transaction costs.
As regards exchange rate dynamics, the best way to prevent a systematic decline in the exchange rate is to keep it market-based and maintain low inflation. All else being equal, low inflation makes the exchange rate stabler.
QUESTION from Kommersant-Volga (Samara):
Is it possible to say that the Bank of Russia kept the key rate unchanged not to fuel households’ inflation expectations further and, consequently, higher inflation, among other things?
ELVIRA NABIULLINA:
No, this is not so. The key rate has the following effect. It causes a decrease in inflation, while lower actual inflation is the basis for a reduction in inflation expectations. If the key rate is just kept at a low level, inflation expectations would, to the contrary, go up. This would mean that the Central Bank is not taking adequate measures to lower inflation and inflation expectations.
However, I would like to reiterate that the key rate has a time-lagged effect and I described the transmission earlier in the statement. The increased key rate of 21% has been effective only from the end of October, while it takes from three to six quarters before our key rate decisions are fully transmitted. This does not mean that there will be no effect during the first months after the rise, but the effect will translate in full over the course of the said period.
This is not true to say that a key rate increase pushes inflation expectations and particularly inflation higher. The effect is just the opposite: price dynamics in retail impact inflation expectations, and when price growth starts to decelerate, inflation expectations will lower. However, this cannot happen by itself – this is exactly why we need monetary policy measures.
ALEXEY ZABOTKIN:
As to the rationale for the decision, I would like to stress once again that we have decided to keep the key rate at 21% because the data for the past six weeks, which characterise both actual credit activity and future plans to expand loan portfolios, demonstrate quite convincingly that monetary conditions have apparently already become sufficiently restrictive to decelerate inflation. Accordingly, as long as these dynamics have been observed for only six weeks and we would prefer to obtain additional evidence, the Board of Directors’ signal remains moderately tough and, in February, we will again explore the need to further raise the key rate.
ELVIRA NABIULLINA:
It remains moderately tough, but still not as tough as before.
ALEXEY ZABOTKIN:
Indeed.
ELVIRA NABIULLINA:
Now, our signal is that ‘the Bank of Russia will explore the need to raise the key rate’ instead of ‘the Bank of Russia admits the possibility of a key rate increase’, which implies a somewhat lower probability of a key rate rise than we predicted in October.
QUESTION from Expert:
The Central Bank has been considerably revising its forecast throughout the year. Do you have any plans to upgrade the model once again?
ELVIRA NABIULLINA:
We review our forecasts on a regular basis. This is public information. We revise forecasts four times a year when preparing for the core meetings. Accordingly, in February, we will revise the forecast again. Forecasts may be updated and changed considerably or to a lesser extent, depending on global developments and the situation in the country and their potential effects on the inflation rate and forecast. Therefore, revisions are not something unexpected. Nevertheless, this year, the revisions have been really significant if we compare the forecasts as of the beginning and the end of the year. This is associated with the processes happening in the economy.
As regards our models, in the first place, we have several models and all of them are publicly available. It is possible to read about them and criticise them. We communicate with experts and welcome their feedback. We are continuously enhancing our model-based approaches and will be upgrading them further.
QUESTION from NTV:
Let me ask you a New Year question. Recently, VTB First Deputy Chairman Dmitry Pyanov made a post styled as a letter to Father Frost. Obviously, this is what many of us wish today. The key rate has remained unchanged. Still, as the Bank of Russia Governor, what would you ask from Father Frost for the Russian economy in 2025?
ELVIRA NABIULLINA:
I wish the economy would return to a balanced growth path. What does this mean? This means positive growth rates not just over the course of one year but in the long run as well, for us to be confident that the economy is expanding constantly and sustainably. Of course, I would ask a slowdown in price growth, just as anyone, I guess. These two wishes are actually about the same – this is an increase in people’s welfare.
Nonetheless, apart from requests to Father Frost, we have tools to achieve this.
QUESTION from ChechnyaToday (Grozny):
After the four years of high inflation, people no longer expect that prices for goods and services will decline in the future. Inflation expectations keep growing. Is it impossible to restore consumers’ confidence in price stability, in the Bank of Russia’s view?
ELVIRA NABIULLINA:
Of course, we do not think that such confidence cannot be restored, but you are right saying that, after a long period of high price growth rates, people are less likely to believe that prices will stabilise in the future. This is true, and we are well aware of this. There is only one way to restore confidence – we need to lower price growth rates, decelerate inflation and maintain it close to 4%, which has been our target for a long time.
Nevertheless, there is nothing impossible in this regard. I would like to remind you that the years
QUESTION from Russia 24:
In view of persistently toughening sanctions, including those related to international interbank payments, do you consider the possibility of investment in cryptocurrencies or have any plans to develop cryptocurrency infrastructure?
ELVIRA NABIULLINA:
We do not consider such an option. We still believe that cryptocurrencies should not be used as a means of payment inside the country. Indeed, we have supported and are advancing the projects associated with the use of cryptocurrencies for cross-border settlements, but we object to using them for settlements inside the country.
Therefore, in terms of investment in cryptocurrencies, if you are talking of the Central Bank, this becomes meaningless. In terms of preservation of the value, cryptocurrency is a highly volatile asset.
On the other hand, we will not be able to use this asset for interventions in the domestic market to stabilise the situation because we firmly believe that settlements in cryptocurrencies inside Russia shall not be permitted.
QUESTION from Bitkogan project:
Don’t you think that today’s key rate decision, which is much softer than expected, might cause a further depreciation of the ruble?
ELVIRA NABIULLINA:
No, we do not think so because, currently, the exchange rate depends on the balance of trade to a greater extent. It used to depend on capital flows previously, whereas now, this dependence still remains but is much weaker. Earlier, the interest rate level influenced the exchange rate through carry trades, among other things. Nevertheless, we believe that our today’s decision will generally have no effect on the exchange rate.
ALEXEY ZABOTKIN:
I would like to reiterate that today’s decision reflects the Central Bank’s opinion that monetary conditions have apparently become sufficiently restrictive to ensure a more balanced growth rate of demand in the economy. A more balanced increase in demand will help promote conditions for low inflation, which will make the dynamics of the exchange rate more balanced as well.
QUESTION from Moskovsky Komsomolets:
To stabilise the exchange rate, at the end of November, you decided not to make fiscal rule-based foreign currency purchases in the domestic market. This strengthened the ruble to a more psychologically comfortable level of less than 100 rubles per US dollar. Will the regulator extend this measure into 2025? Is there any benchmark level, whether psychological or not, for the exchange rate, e.g. for 2025 Q1? Do you assume that there might be a slump in the ruble exchange rate and what is the Central Bank going to do in this case?
ELVIRA NABIULLINA:
Answering your question, I would like to stress once again that the exchange rate is floating and we are not targeting any certain level. We do conduct foreign exchange interventions – and the suspension of fiscal rule-based foreign currency purchases is also kind of foreign exchange interventions – when there are risks to financial stability that I have spoken of. Currently, we do not observe such risks. As to mirroring operations, we will announce all the parameters for 2025 next week.
QUESTION from Elakhovsky (YouTube channel):
From the end of November, the Bank of Russia resumed one-month repos with banks in order to, as market participants believe, encourage banks to purchase federal government bonds offered by the Ministry of Finance, and this is exactly what has happened. Many consider that this practice is hardly compatible with the tight monetary policy stance translated by the Bank of Russia through the key rate and might accelerate inflation further. I feel certain that you disagree on this interpretation. What was the rationale for such a decision? Why do you think that this funding of the government debt increase will not fuel inflation?
ELVIRA NABIULLINA:
You are totally right saying that I disagree on this interpretation. Our repos do not involve any additional inflationary pressure. Just the opposite.
By the way, this is a tool that we have been using for several years already. Indeed, we observed liquidity fluctuations at the beginning and the end of the year that were associated with budget operations. At first, the Ministry of Finance increased borrowings through government bond offerings, while the main budget expenditures were scheduled for the end of December, which is exactly what caused these liquidity fluctuations. Our operations are to prop up banks’ liquidity until budgetary funds are credited to their accounts.
This reduces interest rate volatility in the money market, which ultimately helps achieve the inflation target.
As you remember, repos are transactions settled on a repayable basis. As budget expenditures are distributed across the banking sector, the Bank of Russia will be gradually reducing the amount of liquidity provided at each repo auction. As a result, just as usual, the debt on such transactions will decrease to zero by the end of 2025 Q1.
This is not easing our monetary policy, that is, the short-term money market rate remains close to the key rate. We can see this.
ALEXEY ZABOTKIN:
I would like to add that banks raised a much lower amount of liquidity than the limit available at the repo auction held this week, which proves that the scale of the liquidity inflows and outflows is even smaller than was assumed.
QUESTION from Furydrops (weblog):
Isn’t it necessary to reassess the effect of the pass-through of exchange rate fluctuations to the Russian economy in view of higher volatility and structural changes in the foreign exchange market? What is the Bank of Russia’s opinion about this? As far as we understand, there are no other interventions, apart from the suspension of fiscal rule-based operations. Does this mean that the Central Bank prefers a faster adaptation to structural changes rather than a reduction in this volatility, this uncertainty?
ELVIRA NABIULLINA:
Indeed, in our opinion, a market-based floating exchange rate enables the economy to more quickly adjust to shifts in the external environment that in the first place affect the exchange rate. As regards the effect of the pass-through, I would like to ask Mr Zabotkin to comment on this issue because we do regular reassessments of the pass-through. Indeed, the exchange rate today is rather influenced by other factors to a greater extent. Mr Zabotkin will comment on how we take this into account.
ALEXEY ZABOTKIN:
Speaking of the effect of the pass-through, it has been estimated at
Of course, if the exchange rate shifts because of persistent changes in external conditions, the pass-through will be much more significant although extended over time. It is necessary to differentiate between these two types of movements and clearly understand what is implied by the effect of the pass-through we are talking about. Furthermore, the effect of the pass-through is not linear and, when fluctuations are more considerable, this effect translates more quickly.
QUESTION from InvestFuture project:
My question is related to the President’s executive order to double the ratio of the stock market capitalisation to GDP to 66% by 2030. What is your opinion about this? Is the growth of the stock market a parallel with the economic growth and, if so, is it possible to double its capitalisation without an increase in inflation?
ELVIRA NABIULLINA:
This is a very ambitious target. Taking into account the pace of the stock market development in earlier periods, this target means a substantial acceleration of the stock market development and growth. The stock market capitalisation depends on multiple factors, including investors’ expectations for companies’ prospects and the overall macroeconomic situation.
Of course, the rise in capitalisation depends on the growth rate of the economy. However, capitalisation can increase faster than the economy as well, provided that large companies actively make initial public offerings, that is, when the range of companies entering the exchange, the capital market expands. We have great opportunities for growth in this area, which is why the stock market can grow faster than the economy.
Nevertheless, we believe that this requires steadily low inflation. With regard to the stock market, this will mean a decrease in the discount rate because the latter depends on risk premiums for particular securities and on interest rates. Therefore, lower inflation will largely produce another positive effect – the development of the stock market.
QUESTION from Nezavisimaya Gazeta:
Earlier, at the Russia Calling! forum, President Putin directly requested the Government and the Central Bank to coordinate their efforts and, in the course of close cooperation, find the golden ratio in the monetary sphere. Does this mean that the Bank of Russia and the Government will now start to cooperate with each other in a new, special manner? What innovations in your cooperation can be expected? Will the Central Bank, in particular, take into account that a high key rate involves certain burden on the budget because the Government needs to subsidise this rate?
ELVIRA NABIULLINA:
Speaking of our interaction with the Government, the principles remain the same. The Government makes its decisions taking into account fiscal space, budget targets, and national priorities. The Bank of Russia pursues an independent monetary policy so as to prevent demand in the economy – I would like to reiterate that we influence demand – from pushing price growth rates higher, taking into account all the circumstances, including the configuration of fiscal policy.
As I have said earlier, fiscal policy normalisation next year will imply a more moderate approach to subsidised lending programmes, which will also help bring inflation down.
In terms of enhancement of the coordination, in our view, the frequency and scope of the exchange of information and opinions about economic developments in recent months have been more significant than usual. As long as this is a challenging period and the situation is rapidly changing, we should compare notes more frequently but still make decisions within our respective remits using our respective tools, while having a much better understanding not only of inflation trends but also of economic prospects at the industry level.
By the way, we are now cooperating more closely not only with the Government but also with the business community because the situation varies across industries and enterprises and we need to assess all these aspects.
As regards the burden on the budget, indeed, there is a temporary rise in budget expenditures on government debt servicing and payments under subsidised programmes because the latter imply that interest rate risk is almost completely covered by the budget. This is yet another reason to amend the approaches to subsidised programmes. However, this increase in the burden is temporary, only for the period of high interest rates, whereas persistently high inflation would require indexations across a wide range of expenditure items. When indexations increase, this causes a continuous expansion of the base, that is, this affects the budget. In our opinion, persistently elevated inflation is a much more serious problem than a high key rate.
QUESTION from Krasny Sever (Vologda):
High interest rates encourage businesses to make bank deposits rather than use available funds to develop production. Moreover, both corporate and retail loans have become less affordable. Considering these two factors, how will banks ensure high returns on deposits, what resources can they use?
ELVIRA NABIULLINA:
A bank pays the interest on deposits from the interest it charges on loans it issued. As you know, loan rates are normally higher than deposit rates. Thus, the difference between loan and deposit rates last year was quite significant, namely 4.7 percentage points. Over the first nine months of 2024, this difference slightly decreased to 4.4 percentage points, but the gap is still large. Moreover, lending continues to expand, although more slowly.
Therefore, banks have a totally reliable source of funds to pay the interest on deposits. There is nothing to worry about.
Sometimes, we are asked why loan rates are so high and who can raise so expensive loans. For the most part, these are businesses. Indeed, the growth rate of corporate lending has declined but is still positive. The absolute majority of corporate borrowers raise loans at variable interest rates linked to the key rate, expecting that their repayments will become smaller when the key rate starts to decrease.
The demand for loans remained very high, was elevated until October. Currently, we can observe a slowdown in lending. What does this mean? If the demand for loans declines, loan rates will go down as well. Similarly to any other market, when demand drops, product prices decrease. When this trend emerges, banks will begin to gradually reduce deposit rates. In economic terms, your question is apparently about banks’ ability to correlate these two processes, that is, increases in deposits and loans, about banks’ ability to manage their interest rate risk. Yes, they are able to do this, and we are constantly monitoring this issue.
QUESTION from Dengi Ne Spyat project:
The Russian stock market has been focusing on Russian private investors recently. Regretfully, there has been a growing number of frauds committed by owners of large Telegram channels. I am talking not only of individuals but also of legal entities. Are there any initiatives with regard to information sharing among the exchange, brokers, and Roskomnadzor (the Federal Service for Supervision of Communications, Information Technology and Mass Media) aimed at enhancing the transparency of the stock market?
ELVIRA NABIULLINA:
You are absolutely right. We have just been talking about the goal to increase the stock market capitalisation. To this end, we need a transparent stock market not only in terms of information disclosure by issuers but also in terms of overall pricing in the market. In other words, the transparency of the stock market is crucial.
We do share data with both the exchange and professional market participants who inform us about abnormalities in the market for us to take prompt measures. Pump-and-dump schemes were widely spread in 2023, predominantly in the market for third-tier shares. There were many questions about these schemes then at press conferences. Today, we can see that these cases are rare. Together with Moscow Exchange, we introduced mechanisms that will help restrain volatility of these securities in the market and discourage the use of such schemes. We have managed to prevent a rather large number of attempts to destabilise pricing. In this regard, Telegram is just one of the channels. There are multiple channels that can be used for manipulation purposes. Nevertheless, we do see that it is quite popular, and we will certainly continue to pay particular attention to this issue.
QUESTION from Frank Media:
My question is also associated with the New Year to a certain extent. What was the main problem for the banking sector or the main challenge to it in 2024 and have banks managed to address them, in your opinion?
ELVIRA NABIULLINA:
I would not say that the question is related to the New Year. It is rather about an overview of the banking sector’s results. Overall, the banking sector is very resilient, banks have been developing sustainably, and lending has been growing fast.
Speaking of the challenges that the banking system faced in 2024, these are apparently the packages of the sanctions, including against Moscow Exchange, and difficulties in processing cross-border settlements for banks’ clients. I would like to remind you that 129 banks are currently sanctioned, which is twice as much as last year. The sanctioned banks account for 95% of the sector’s assets.
I should say that despite the current scope of the sanctions banks remain resilient and find opportunities to continue the work. Answering your question about whether they have managed to cope with the main challenges, yes, they have and they continue to address them. This does not mean that there will be no such risks in the future. In view of this, it is vital for the financial system to remain resilient, and we are closely monitoring this and adjusting the banking regulation so as to ensure this resilience in the long term.
QUESTION from PRO.FINANSY project:
Does the Central Bank plan to somehow encourage an increase in the number of qualified investors? On the other hand, is it going to introduce any restrictions in 2025 to protect non-qualified investors?
ELVIRA NABIULLINA:
As to the number of qualified investors, of course, it would be great if the number of qualified investors increased. However, the level of qualification is really essential. In view of this, we had many discussions, debates with market participants regarding changes in the criteria for qualified investors.
It is critical for individuals entering the market to be able to assess risks. In our opinion, a very important qualification criterion for investors is their experience and knowledge and not only the assets they are going to invest in this market. The formal criteria of the amount of funds should take second place. These criteria were changed. To receive the qualified investor status, it is now necessary to pass a special test, which will be confirmed by a certificate.
The Bank of Russia will establish the list of certificates to be recognised as valid. There are training programmes already developing in the market, there are organisations who are developing these programmes, including large banks and Moscow Exchange. Therefore, it is critical to enhance the quality and increase the number of qualified investors.
As to limiting the risks to non-qualified investors, this is a very important task for us. In order to preserve confidence in the stock market – and today many of you have already been talking about its transparency – it is crucial not to deceive non-qualified investors. This is the protection principle we rely on. We will be closely monitoring the products developed in the market, and if needed, take additional measures.
QUESTION from Anna Finance project:
Yesterday, President Putin said that there should be no limits under the Family Mortgage programme. There is another problem that many borrowers face. Those banks who receive the limits ignore the requirements of the Government’s resolution for the minimum down payment of 20% and establish their own terms for the down payment increasing it up to 50%. Consequently, it becomes impossible for many buyers to purchase housing under the Family Mortgage programme. Are there any tools to influence this situation so that the banks receiving the limits or any other types of allocations allow people eligible for the Family Mortgage programme to purchase housing with the minimum down payment provided for by the Government’s resolution.
ELVIRA NABIULLINA:
This is true, it is the Government who stipulates the main parameters of the Family Mortgage programme. As to the down payment, the Government set its minimum level. This means that banks are entitled to establish their own requirements for the down payment.
We do see that the requirements of certain banks are higher than the minimum set by the Government. This can be explained by two reasons. The first one is that banks make a bona fide assessment of a borrower’s risks and, where these risks are high, they certainly increase the down payment so as to reduce such risks. However, there might also be unfair practices. We will be monitoring the situation. If we detect unfair practices, we will take appropriate measures. Nevertheless, in general, we may not intervene in banks’ operation. If unfair practices are revealed, we will restrict them.
QUESTION from Domclick:
Is there anything, apart from the key rate, that could now reduce inflation for the Central Bank to start cutting the key rate?
ELVIRA NABIULLINA:
For inflation to go down, the dynamics of aggregate demand should become more moderate. Of course, an increase in the supply of goods and services also has an effect on inflation, but our key rate cannot boost the supply. This is rather what the Government can do. Speaking of supply-side measures, growth in the supply of goods and services, these measures are within the remit of the Government. The Central Bank impacts aggregate demand.
Today, the major factor for decelerating the expansion of demand, as a result of which inflation will start to notably decrease, is slower growth in credit. In our opinion, this will be ensured through the already accumulated effects of the earlier monetary policy tightening, while the banking regulation measures and macroprudential add-ons will also have a certain impact on the growth rate of credit. However, the goal of these measures is different – they are meant to support banks’ financial stability. Nonetheless, they will influence the dynamics of credit indirectly and thus will be another factor of a slowdown in lending. We take into account this factor as well and can see that monetary conditions have tightened.
Another essential factor of a reduction in inflation should be and, as we expect, will be fiscal policy normalisation in 2025.
As to when it will become possible to begin cutting the key rate, the four triggers, which I have mentioned today, remain relevant. Of course, we will do a comprehensive assessment of inflation and its underlying components, inflation expectations, lending trends, consumer activity and other factors and adjust our forecasts.
ALEXEY ZABOTKIN:
I would like to remind you that, as we wrote in the Monetary Policy Guidelines in autumn, a potential disinflationary effect might be produced by more significant payoffs from investment made in
ELVIRA NABIULLINA:
I have already said that we communicate, interact with businesses. There are companies that are significantly upgrading their business processes, thus reducing their costs, and do not need any additional borrowings or additional investment. Many companies are able to do so. We have already observed the effects. In particular, my colleagues have visited a number of enterprises and made sure that this is totally possible. We do know that this is happening. When companies realise that it has become impossible for them to pass through all their costs to prices, they will inevitably be forced to optimise their costs.
QUESTION from Market Power project:
My question is about the labour market. What is the Bank of Russia’s forecast of unemployment as of the end of 2025? What industries will mostly return workers to the labour market?
ELVIRA NABIULLINA:
The situation in the labour market is definitely a crucial factor to estimate companies’ capacities to ramp up production. Businesses still refer to it as the main constraint. According to recent data, labour market tightness has stopped increasing in a number of industries. We do not make any forecasts for the labour market, whether as a whole or across industries. Nevertheless, we can really observe the first signs of a decline in the demand for labour. This process will be uneven across the economy, workers will change industries and employers. This process will considerably influence our estimates and decisions, including policy choices.
QUESTION from Fomag.ru:
The key rate causes a situation where many investors opt for liquidity funds. There is a huge number of such investors, and a large amount of money is concentrated in these funds. When the conditions start changing and the key rate goes down, these funds will lose relevance, and therefore, it will be needed to somehow dispose of them, sell them. Everyone might prefer to act in a similar way. Can this provoke a serious risk to the system as a whole?
ELVIRA NABIULLINA:
Indeed, we can see that investors’ demand for these funds has grown, driven by the key rate increase, among other factors. However, we believe that investors may stay interested in this instrument in the future as an alternative to deposits. Why will it remain attractive? The reason is that money market funds earn interest at a rate close to the key rate and enable investors to withdraw the funds without losing the income earned. This makes this type of investment attractive. Besides, the minimum required amount is low.
As you know, key rate changes may result in the transfer of savings from one form to another. This is a natural, normal process. We can also observe such a process in the countries having a large share, a large amount of money market funds. We do not know any examples when a key rate reduction could cause a rapid outflow of money from such funds.
Thank you very much for your questions. Happy New Year! I hope everything will go well.