Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting on 6 June 2025
Good afternoon. Today, we have made the decision to cut the key rate to 20% per annum.
The high key rate has led to a substantial deceleration in inflation. Price growth is still largely uneven across groups of goods and services, but now we are more confident that disinflationary processes have become sustainable. The dynamics of inflation and economic activity give us the sufficient ground to cut the key rate. However, we are going to maintain tight monetary conditions for a long time. This is necessary for a sustained return of inflation to the target.
I would now dwell on the reasons behind our today’s decision.
Firstly, inflation continues to slow down.
In March, the current price growth rate was 7% in annualised terms, and in April, it decreased to about 6%. The main contributor has been the high key rate. Nevertheless, its impact is still uneven across different segments.
Tight monetary policy has had the strongest effect on the group of non-food goods where price growth rates are rather low overall. We can clearly see that the key rate has been transmitting to this segment through the interest rate and the exchange rate channels. High interest rates have become one of the major drivers of the ruble strengthening. Coupled with the cooldown in demand, this has additionally affected price dynamics in the non-food group. As a result, many goods in the segment of household appliances and electronics, like smartphones, TV sets, and vacuum cleaners, have shown little change in prices or have even fallen in prices over the past year.
Current growth rates of food prices have declined overall, albeit less notably than those of non-food prices. The dynamics of food prices were also diverse. Thus, prices for certain products, such as milk and eggs, have stopped to go up or even started dropping, following their spikes over the previous periods. Prices for greenhouse vegetables are declining abnormally fast for this season. Contrastingly, price pressures in the group of meat products have been intensifying.
Growth rates of prices for services remain high as demand in this sector is affected by the dynamics of households’ incomes more than by lending dynamics. Given persistent income growth, the demand for services is increasing faster than that for goods.
Inflation expectations are still high. Nevertheless, businesses’ price expectations have been lowering sustainably since the beginning of the year, so, in general, we can state that a downward trend here has formed. As for households’ inflation expectations, there is no consistent direction here — they are fluctuating in the range of
Elevated inflation expectations are one of the key factors requiring us to be cautious in taking decisions.
Secondly, the economy.
Domestic demand, albeit still high, is nevertheless shifting to more moderate growth rates. High-frequency data for April and May indicate that the rise in household consumption and investment activity continued to decelerate smoothly.
According to our monitoring of businesses, demand will be expanding more slowly overall than last year. That said, economic activity, like inflation, is characterised by high heterogeneity. The structural transformation of the Russian economy inevitably leads to a situation where demand will be rising at elevated rates in some sectors, while falling in others, especially after overheating in some segments, like in construction.
As for the labour market, there are now more signs of an easing. According to our surveys, the percentage of companies experiencing labour shortages has been declining. The number of vacancies and wage offers in the most overheated segments, such as IT, has been trending downwards. In addition, the number of industrial enterprises reporting to be fully staffed has gone up as well as that of enterprises that have reduced the number of work shifts. What is important to us is whether these cases will influence overall labour market tightness and the dynamics of the wage-to-productivity ratio.
Thirdly, monetary conditions remain tight.
Yield curves in the government bond market and the money market have shifted downwards since our meeting in April. Overall, interest rates on loans and deposits have edged down since the previous meeting. The spreads between loan rates and the key rate have narrowed, although they are still elevated due to banks taking a more conservative approach to risk assessment.
Nominal rates have been declining, but real interest rates should be taken into account as well. Considering the inflation slowdown and some decrease in inflation expectations, real interest rates are still high, while monetary conditions remain tight overall. Today’s key rate cut, taking into account the inflation deceleration, does not imply a significant easing of monetary conditions in real terms.
In this environment, credit activity remains modest. The cooldown has been mostly observed in the segment of unsecured consumer lending, while mortgage lending saw a slight increase. I would like to note that activity in the housing sector should not be assessed solely based on mortgage lending. We see that the percentage of homes bought by people using their own funds has been growing, and sales in square meters were relatively stable over the past 10 months. As for corporate lending, it expanded slightly over the previous two months.
However, considering very modest growth rates of the portfolio in early 2025, total lending to the economy is still closer to the lower bound of our forecast. Money supply growth is also in line with our forecast. The saving ratio remains high.
As regards external conditions.
The foreign trade surplus edged down in March—April due to falling prices for core Russian exports, that is, crude oil, certain metals, and coal. Imports dynamics are still moderate, which is mostly the result of tight monetary policy.
Tight monetary conditions have also resulted in sustainably high demand for ruble assets. The difference between interest rates in rubles and other currencies is now at its all-time highs. This means that it is more profitable for both companies and households to make savings in rubles than accumulate assets and savings in foreign currency. Coupled with the fiscal rule, this ensures a stable balance between demand and supply in the domestic foreign currency market, even despite declining oil prices.
Now, I would like to speak about risks to the baseline scenario.
Some proinflationary risks have decreased since our previous meeting, e.g. the risk of the Russian economy deviating upwards from a balanced growth path for a longer period.
Nevertheless, proinflationary risks still prevail. First of all, we are concerned about the persistence of high inflation expectations among households despite disinflation and a stronger ruble. Moreover, risks associated with the labour market are rather pronounced. The situation here may remain tense for a long period, hindering the return of inflation to the target. Finally, there are risks related to the dynamics of global prices for Russian exports.
Disinflationary risks include a much faster cooldown in lending and demand than we are currently observing.
An important factor affecting our decision-making is fiscal policy. If the budget impact is less disinflationary than assumed in the announced plans, we will need to adjust the key rate path.
Furthermore, there are still risks associated with geopolitical developments, which are predictably unpredictable.
To wind up, a few words about our future decisions.
I would like to remind you that the key rate of 21% was set in late October. It will take no less than three quarters for its effect to fully translate into the economy and inflation. This means that, adjusted for inertia and time lags, our previous decisions will continue to ensure disinflation. In the environment where the balance of risks remains shifted towards proinflationary ones, our approach to cutting the key rate requires a lot of caution. This suggests that there might be pauses between steps. Moreover, if inflation stops decreasing sustainably or even starts accelerating, the key rate may be raised. We need to maintain tight monetary conditions to ensure further disinflation. This is possible even when we cut the key rate, provided that inflation and inflation expectations are also declining. Our future decisions will be aimed at achieving the inflation target of close to 4% in 2026.
Thank you for your attention.