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Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting 23 April 2021

23 April 2021

We have made the decision to raise the key rate by 50 basis points to 5.00% per annum.

Today, we have discussed two possible options: whether to increase the key rate by 25 or 50 basis points. I would like to explain why we have chosen this very option accelerating the return to neutral monetary policy.

The economy continues to recover actively. We estimate that it will bounce back to the pre-pandemic level in the second half of the year. The majority of industries have already completely recovered today. The rise in all other sectors is only constrained by the remaining restrictions largely associated with the pandemic. Accommodative monetary policy has fully played its countercyclical role, supporting the economy at the acute stage of the crisis.

Currently, the fast recovery of demand is forming steady inflationary pressure intensifying supply-side constraints. Households’ and businesses’ inflation expectations have risen notably. They have been elevated for over six months. This is a matter of our great concern. High inflation expectations are being translated into inflation movements already now. Moreover, this effect on the steady component of inflation is becoming increasingly stronger. If they are not limited, this will continue to boost inflation. Amid these inflation processes, we need to return to neutral policy faster than we assumed before. Progressive economic growth will continue in this case.  Any delay would require us to raise the key rate more significantly in the future, or even to pursue tight monetary policy.

After today’s increase in the key rate, we have approached the threshold between accommodative and neutral policy. Taking into account the time lag effects of policy, monetary conditions will generally stay accommodative for a while longer. We will be closely monitoring how the market will be adjusting to our decisions.

I would now dwell on the factors of our today’s decision.

I will start out with inflation. Today, the acceleration of price growth is absolutely obvious across a wide range of products and services. This is caused not only by one-off factors and the pass-through of higher production costs, but also by the stronger impact of the steady component of price dynamics to an increasingly greater extent. In our opinion, this growth reflects the monetary nature of inflation.

It is the fast rebound of aggregate demand exceeding the capacity to expand supply that has sped up price growth. As demand is high, this enables producers to pass through their increased costs to end-user prices. Production costs have really risen. Specifically, the growth of world prices for raw products (primarily, for wheat, steel, oil, and timber) has boosted production costs of many goods and services in the consumer basket. For instance, global steel prices have surged by 50–70% over six months. Prices for this metal impact prices for cars, household appliances, construction materials, garden tools, and other goods. These trends are also typical of a range of other products and services. However, I would like to repeat once again: it is the rapid recovery of aggregate demand that makes it possible to pass through costs to price growth.

Taking into account elevated inflation expectations and the nature of inflation processes in general, we have raised our short-term estimate of the inflation path. Previously, we believed that annual inflation would peak in March, gradually decreasing further on, while now we expect annual inflation to plateau until the middle of the year close to its readings observed in the first quarter. The annual rates of price growth will begin to slow down steadily in the second half of the year as the effect of one-off factors tapers off. However, given the period of substantially accommodative monetary policy and the time-lagged influence of our decisions on inflation, we believe that elevated inflationary pressure may persist until the end of the year due to the impact of the steady factors.

In this regard, we have revised our inflation forecast for the end of 2021. The inflation rate will equal 4.7–5.2%. This is significantly higher — by one percentage point — than was expected in February.

Our decision to accelerate the return to the neutral key rate will make it possible to bring annual inflation back to 4% by the middle of 2022. As I have already said, any delays would postpone the achievement of the target. Moreover, the key rate that would be required for this purpose would be considerably higher.

As regards the economy, I would like to stress that the majority of industries have already bounced back to the pre-pandemic level of output. Certain restrictions remain in a number of sectors, first of all in oil production where they are associated with the OPEC+ agreements. The services sector, where small and medium-sized enterprises account for a larger portion than in other industries, has not fully restored yet. The decline here was stronger and still persists, although the recovery process is quite active.

Quarterly data on GDP for 2020 confirmed our estimates that business activity did not wane during the autumn wave of the pandemic, in contrast to many other countries. Furthermore, companies promptly responded to the recovery in demand, purchasing equipment, making investments in production expansion, and forming the inventories of raw products and components. Among other things, this is evidenced by the rise in investment imports over the last six months.

Taking into account high-frequency indicators for the first quarter, we keep unchanged our GDP growth forecast for this year at 3–4%. As the reduction in GDP was slightly lower last year and demand has increased, the economy may generally reach pre-pandemic levels as early as in the second half of the year. This will be primarily driven by a more active recovery of households’ consumption, which will be supported by growth in disposable income, retail lending, and a declining savings rate.

Monetary conditions remain accommodative.  Nominal interest rates are close to their record lows. Accommodative monetary conditions support high growth rates of lending to the economy. We forecast that corporate lending will expand by 8–12% this year. Mortgage lending will continue to increase fast at 16–20%.

The rise in unsecured consumer lending which slowed down last year has accelerated. In March, seasonally adjusted monthly growth rates exceeded 15% in annualised terms. As the increase in unsecured consumer lending exceeds the growth of incomes, this entails excessive debt burden for borrowers. As before, we believe that such a situation involves significant risks. Therefore, in the near future, we will consider the issue of returning to pre-crisis risk buffers for new loans.

Accommodative monetary policy has reduced interest rates not only on loans, but also on deposits. Moreover, elevated inflation is detrimental to households’ savings: deposit rates often do not exceed inflation. Inflation threatens both people’s current incomes and savings, especially in cash. The increase in the key rate will support rises in deposit rates, on the one hand, and slow down inflation and protect households’ funds from devaluation, on the other hand.

Now, I would like to speak on external conditions and the parameters of the balance of payments. We proceed from the fact that the global economy will be bouncing back faster than we expected in February. This will be driven by a large-scale fiscal stimulus in advanced economies and the mass vaccination of people worldwide. The growth of the global economy will boost the demand for Russian exports. Taking into account this factor and the slower recovery of oil production under the OPEC+ agreements, we have raised our forecast for oil prices from 50 to 60 US dollars per barrel this year and to 55 US dollars per barrel next year. The forecast for 2023 remains unchanged at 50 US dollars per barrel.

Accordingly, we have also increased the forecasts for exports and the trade surplus. As domestic demand has been expanding, we have revised the imports forecast upwards. The current account surplus will grow to 56 billion US dollars this year from 34 billion US dollars last year.

Now, I would like to discuss in detail risks that are beyond our baseline forecast.

Proinflationary risks are primarily associated with increased inflation expectations. As inflationary pressure is stronger and supply-side factors exert additional influence on price growth, inflation expectations may stay elevated for longer time. Consequently, the saving ratio may decline faster, with consumer activity rising above expectations.

As always, there are risks related to the external sector, including changes in the geopolitical environment. We have always taken them into account. In a situation where these risks materialise, an increase in volatility in financial markets may speed up inflation, which we factor in when making our decisions.

There are also disinflationary risks, yet the probability of their materialisation is lower and they are mostly associated with the fact that demand growth may turn out to be below our expectations. This group of risks may also include a faster reopening of borders, as a result of which demand may shift from domestic consumption to foreign travels. The risk of new coronavirus strains or lower paces of vaccination persists, which, in contrast, may reduce people’s mobility and limit consumption growth, especially in the services sector.

If the situation develops not in line with our baseline scenario, we will be responding so as to bring inflation back close to its 4% target over the forecast horizon.

Winding up, I would like to comment on the future path of the key rate.

Today, we have first published the ranges of the average Bank of Russia key rate for a calendar year over the forecast horizon. According to our baseline forecast, this year the average key rate will generally equal 4.8–5.4% p.a., 5.3–6.3% p.a. next year, and 5–6% p.a. in 2023, which is in line with the range of the long-term neutral key rate.

By publishing the path of the key rate, we increase the transparency of our communication, which will ultimately improve the efficiency of monetary policy.

Thank you for your attention.

Q&A for the Media


Before I answer your questions, I would like to remind you that we discussed the format for publishing the forecast of the key rate for quite a long time. Yesterday, we released our methodological note regarding this forecast on the Bank of Russia website. Alexey Zabotkin, Deputy Governor of the Bank of Russia, will now outline the key aspects we would like to focus on.


I would like to outline very briefly the key aspects that are mostly covered in our methodological note. I will be glad to provide additional explanations on this topic, for instance the reasons why we have chosen this very format for communicating the projected path of the key rate, if you have such questions.

There are three essential aspects. First of all, the projected path of the key rate is an integral part of the Bank of Russia’s forecast. Hence, it should be considered and interpreted in the context of this forecast, that is, all the macroeconomic conditions and assumptions this forecast relies on. Being part of the Bank of Russia’s forecast, the projected path of the key rate will be updated, just as the forecast in general, following each core meeting of the Board of Directors on the key rate, that is, in February, April, July, and October.

Second, the projected path of the key rate is published as a range of the average key rate for every calendar year. This means that this range may not be interpreted as the limits of a change in the key rate over a year. As shown in Chart 2 from the methodological note presented yesterday, the limits of a change in the key rate over a year may be slightly wider than the range of the forecast average over the year. This is because, with the key rate kept unchanged for a certain period, it will inevitably be higher for a part of the year and lower for another part of the year than its average over the year.

Lastly, this is the average key rate and not the value of the key rate as of a certain moment of time which influences our monetary policy stance over a year. Therefore, we believe that this is the most informative  indicator for banks, financial markets and, even more importantly, households and businesses, so they can establish an opinion regarding the Bank of Russia’s intents in the area of monetary policy, that is, the level of the key rate assumed by the Bank of Russia as appropriate in the conditions of the baseline forecast in order to achieve the objective of maintaining price stability, namely keeping inflation close to 4%.

QUESTION from Reuters:

Based on the range of the average rate set for 2021, the key rate will average 4.8%. Does this mean that the key rate might be kept at 5% until the end of the year?


This scenario is possible. Everything will depend on how the situation will evolve. This is why we have provided the range of the average key rate both for 2021 in general and until the end of 2021.

QUESTION from Interfax:

I would like to get some clarifications. You have raised the inflation forecast by one percentage point. Previously, you specified particular factors causing higher increases. Could you please explain these drivers?

And question two, please. You have already said that monetary policy is actually at the threshold between accommodative and neutral policy. Still, do you consider it accommodative or neutral? Is it possible to give such an estimate? Do you have any plans for the near future to change the estimate of the neutral rate range which is 5–6% currently? Is it still 5–6%?

My third question is as follows: do you see any risks to the economy due to a possible worsening of the epidemic situation? For instance, today, President Putin announced non-work days between the May holidays.


As regards the structure of the factors which made us raise our inflation forecast for 2021, they are an elevated level of actual inflation in 2021 Q1 exceeding our initial forecast and higher inflation expectations. Moreover, we have observed that demand is bouncing back faster, and we believe that this trend will continue.

As for accommodative and neutral monetary policy, we really estimated the range of neutral policy as 1–2% in real terms and 5–6% in nominal terms, provided inflation was 4%. This is a longer-run neutral rate, a range of the neutral rate. However, currently we can see that inflation exceeds 4%. This is why the neutral range may be even higher in the short run.

But I would like to reiterate that the range of the neutral rate is still only a conditional estimate. If we accumulate additional data, we will be ready to revise it. Currently we believe that there are no grounds for such a revision. Nonetheless, we are ready to make one depending on information received.

As regards the pandemic, I have mentioned it as one of the risks for the baseline scenario which might materialise. However, I would like to note that, even if it happens, the economy is now more capable of adjusting to various restrictions. Hence, we might say that the risks of this scenario will be insignificant, considering both how the economy responded to the resurgence of coronavirus cases last autumn and that there was no decline in Q4, in contrast to many other countries.

QUESTION from RIA Novosti:

How might the reopening of Egypt impact inflation in the Russian Federation, in your opinion? Don’t you expect a surge in foreign exchange transactions for this reason? Do banks have sufficient foreign currency liquidity to meet the demand?


I will start by answering the last question. We do not expect a surge in foreign exchange transactions for this reason. Generally, banks have no issues, no problems with foreign currency liquidity — they have a sufficient amount of currency.

The reopening of Egypt alone will not affect inflation considerably, in our opinion, since its share in the consumer basket is small. It is the reopening of borders with a larger number of countries that might influence domestic demand significantly.

QUESTION from Bloomberg:

In your statement, you referred to the restriction on foreign travel as a proinflationary factor. Have I understood it correctly that your baseline scenario assumes that the majority of restrictions will not be lifted until the end of the year?

My second question is about the National Wealth Fund. President Putin announced plans to use it. What is your opinion regarding this in terms of inflation? Do you have any estimates of how much you might need to reduce foreign currency purchases for the netting of expenses?


As regards foreign travel, indeed, our baseline scenario assumes that the reopening of borders will take place very gradually and to a limited extent. Therefore, a faster reopening of borders with a larger number of countries might be one of the disinflationary risks that we will take into account in our monetary policy.

As for the investment from the National Wealth Fund’s resources, there are currently discussions about this. At the moment, there are no exact figures. We are relying on the initial estimates of approximately one trillion over three years. In this case, there are no significant inflation risks, in our opinion. We can also see that the accumulation of the liquid portion of the NWF will continue with the current level of oil prices.


As the key rate was raised faster instead of being gradually increased over two meetings, is this a signal that the Central Bank will explore the need to further raise the key rate and will take time before increasing it further? Is it possible to say that the regulator has paused the active tightening of its monetary policy?


Everything will depend on how the situation will evolve. There is still a lot of uncertainty. We will consider various scenarios depending on future developments. We do see risks that may arise because of a delay in returning to neutral monetary policy. These risks may force us to raise the key rate more significantly in the future in order to contain inflation. I believe that all of us would prefer to avoid this.

Most likely, we will consider both the option of keeping the key rate unchanged and raising it by 25 bp. Moreover, an increase might be more serious under certain conditions, but a lot will depend on actual data.

QUESTION from TASS Agency:

You have said that inflation will stay on the plateau until the middle of the year. But I would like to understand (given the new inputs) whether new local peaks might occur to exceed the level of 5.8% observed in March.


As far as I understand, you mean annual inflation. Nothing can be ruled out as inflationary pressure is now elevated. However, we might rather say that annual inflation would plateau until the middle of the year. We will be monitoring the situation and will adjust our forecasts as we receive new data.

QUESTION from Rossiyskaya Gazeta:

My first question is whether the projected path of the key rate suggests that the Bank of Russia might shift towards tight monetary policy as early as this year. Is it really so?

And question two, please. Now that the Bank of Russia has raised the key rate, do you expect that households might stop or at least reduce the transfer of their funds from deposits to other savings alternatives?

My third question is about how inflation might be influenced by the reopening of Egypt for tourists?

Lastly, is it possible to say that inflation has passed its peak?


Our policy stance this year will depend on information we will be receiving and adjustments to the forecast for the next year. I would like to remind you that, given the time-lag effect of monetary policy, our next decisions will rather influence inflation in 2022. The upper bound of the forecast key rate — the average key rate — that we published for this year shows that this might be moderately tight monetary policy.

However, I would like to reiterate that, if we consider the range of the neutral rate, taking into account the current levels of inflation and inflation expectations, this policy should rather be characterised as accommodative, possibly becoming neutral. This path is still not the most probable one that would make us switch to tight policy.

As regards the transfer of deposits to the securities market, indeed, the key rate increase is expected to make deposits — a traditional bank product — more attractive for households.

As for inflation reaching a peak, I have already said that inflation is most likely on a plateau now. However, actual developments and last year’s base effects will determine whether annual inflation might rise slightly. Inflation was rather high in March 2020 and then decreased significantly, due to which these base effects might have a serious impact in terms of statistics.

QUESTION from public TV and radio company Kaluga:

My question is as follows. I believe that the regions will also support me. You mentioned soaring domestic demand as a reason for today’s decision. Yet, judging by recent statistics from Rosstat, households’ incomes are not growing — rather, they declined slightly last year.

In connection with this, my question to you is about all these optimistic forecasts. What are the drivers of this demand growth or additional demand and, accordingly, where will households get these funds? Will people be using their savings they are gradually spending in the market because of the stabilising situation or are there any other factors, possibly external ones?


This is a very good and timely question. Indeed, this is related to our main statements and the logic of our decisions, both in March and today. As regards consumer demand, it is influenced by not only current incomes, but also other factors, such as the current saving ratio. This means the share of current incomes people are using to consume or save. The share of accumulated savings. This implies the extent to which people are able to offset a decline in their incomes, for instance, using earlier accumulated savings. The third factor is the affordability of retail loans.

What can we see considering these factors? We can see that households were saving more money last year than usual, partly because of the effective restrictions on foreign travel. These funds might be partially used for consumption this year. Retail lending is expanding quite fast, including as a result of accommodative monetary policy.

Another important factor is still the distribution of income. Wages and social payments are most important for consumption since these are the main sources of income for a large percentage of people. This is the source of income they use for consumption. For instance, we can see that real wages increased last year. Accordingly, the impact of decreased disposable incomes on consumption was slightly more moderate than it was widely expected.

As for consumer demand, there are also other components influencing aggregate demand. They are general government demand, investment demand, and external demand, which is also bouncing back actively, as we can see. Talking of the factors impacting inflation, we’re not just talking about demand trends, but also how they correlate with economic potential and supply expansion.

And we do see problems in this regard because demand, first of all, in consumer sectors, is increasing faster than supply. In other words, we are already at the final stage of recovery growth. Further on, demand should be growing proportionally to the expansion of potential, which actually means that monetary policy should be neutral.

QUESTION from VTimes:

Since the beginning of the year, market leaders almost have not changed their mortgage rates in response to higher yields on federal government bonds (OFZ) and the increased key rate. Moreover, a number of large market players even lowered their interest rates on subsidised mortgage loans. Do you consider this a risk factor for the banking system, an underestimation of interest rate risk by leaders, a sign of overheating requiring response measures from the Central Bank?


Yes, we believe that this market already has some signs of overheating. We can observe a rather fast increase in the demand for mortgage loans and housing purchased for investment purposes. We can also see that the quality of mortgage loans has worsened somewhat. Last year, when we needed to support mortgage lending amid the pandemic, we reduced buffers for mortgage loans with a down payment of 15% to 20%. Now, we believe it necessary to go back to pre-pandemic levels. We will discuss this issue with market participants in the near future. Our view regarding subsidised mortgage loans is well-known.

We can observe that last year’s growth rate of housing prices was generally higher than inflation. Rosstat has not released its statistics yet, but preliminary data for Q1 evidence that prices continue to go up. Considering all this, we certainly need to temper the growth of mortgage lending and monitor the affordability of housing, first of all, in order to avoid an excessive increase in households’ debt burden, which could make it impossible for them to service this debt. Of course, banks should factor in all the risks associated with such loans.

QUESTION from Interfax:

My question is also related to mortgage lending. A month ago, the Central Bank released a consultation paper on mortgage loans with floating interest rates and on what should be done with such products. Given that the key rate has started to increase and risks are rising now, has the Central Bank made any decision yet? How will this product be controlled: by laws or regulations?

Another question is about the regulation of ecosystems. The Bank of Russia has published a consultation paper on this issue. However, in terms of the regulation of banks participating in ecosystems, this paper does not cover the measures planned to be implemented by the Central Bank. The regulator promised to provide relevant information in the near future. Nevertheless, could you please unveil the Central Bank’s ideas? What measures are you discussing as instruments that would limit the risks of banks building multi-billion ecosystems around them?


As to floating rates, I firmly believe that we need to regulate them legislatively. Currently, the problem is that we lack such regulation. Generally, banks might quickly ramp up retail lending at floating interest rates, which involves high risks, in our opinion. Hence, we need proper regulation in this area.

Our paper is currently under discussion. This process is not over yet.  We are receiving feedback and suggestions. Of course, banks would prefer less regulation. We will be discussing various options. However, there might be options, so to say, for the range of rate fluctuations and maturities, even if this portion of loans at floating rates is allowed in some way.

We will complete the discussion in the near future. Based on the results of this discussion, we will certainly prepare our proposals and publish them.

As regards ecosystems, there are two tracks here, so to speak, and two issues, in our opinion. They are interconnected, but still independent. The first one is the regulation of ecosystems, regardless of whether they are built around banks or technological companies. It comprises assessing new risks of monopolisation, the absence of arbitration, let’s say, in taxation and regulation, and creating fair conditions for competition in order to ensure that domestic players are able to compete with foreign ones. However, there are also effects associated not only with the impact of international competition — we also need sufficiently high domestic competition and information transparency.

The second issue is the regulation of the operation of banks starting to invest funds in ecosystems. We are currently discussing this topic and see a number of risks in this regard. I have already mentioned some of them. For instance, the assessment of the risk arising because of the need to support ecosystem elements. We believe that this risk differs from the one associated with investments in non-core assets which might be sold or put into bankruptcy if any problems occur. Contrastingly, where these are interconnected enterprises within one ecosystem owned by a bank, the latter would have limited options for actions in such cases and thus be forced to support these elements, which is a risk.

We should assess this and give some proposals with respect to regulation. We are going to release a consultation paper on this topic at the end of spring or in summer, possibly, and we will certainly discuss it with you.

QUESTION from RBC-Vologda:

I would like to go back to inflation. Is it directly connected with the exchange rate? Is it possible that prices for main product groups go down in Russia? What might cause deflation? Might it be an oversupply in markets when both markets and stores already have sufficient volumes of goods, or possibly tighter competition, or some decisions by the Government?


As regards the impact of the exchange rate, it certainly affects price movements. However, the extent of this impact depends on multiple factors, including the trend in general, how significant the change is and whether it is steady — when there are only short-term exchange rate fluctuations, the so-called pass-through effect (i.e. the effect of exchange rate movements passed through to prices) might be minor. We estimate it as 0.5–0.6 percentage points when the exchange rate changes by 10%. Generally, this pass-through effect is minor.

This largely reflects a rather low rate of overall inflation. Contrastingly, when exchange rate movements are steady, the pass-through of such steady changes to prices might be more considerable. It will be manifesting itself over a longer period, but might push up inflation expectations and have secondary effects. Therefore, it may certainly be significant.

We consider all these factors when making our monetary policy decisions.

As regards deflation, if we’re talking about local deflation and seasonal deflation in a group of products, this is generally quite a frequent trend. It is possible when harvests are high. As we know, food products are difficult to be stored. In late summer — early autumn, farmers mostly seek to sell their products because their storage life is short. Accordingly, prices might fall during this period. Prices might also go down as a result of innovative technologies. For instance, we can observe this trend for various devices — when a new generation is developed, prices for previous-generation equipment start to decline.

Speaking of deflation as a general trend, a decrease in the overall level of prices, it might seem favourable at first, and everyone might consider that it is good when prices go down. However, this might actually involve quite a hazardous state for the economy and, possibly, no less hazardous than high inflation. What does this mean? Deflation discourages consumers from buying because they know that prices may lower even more tomorrow. Eventually, companies’ revenues contract, they have less opportunities for investment and lack funds to pay wages. Moreover, this may slow down economic growth, and deflation is often typical of such economic malaise. This is why countries facing deflation try to stop it.

Nonetheless, there is no risk of system-wide deflation in Russia, in our opinion. What we need to do now is to contain inflation. It is crucial for us to ensure a steadily low inflation rate close to 4%. We believe that this level will help maintain the purchasing power of incomes and savings and foster economic development.

QUESTION from Kommersant:

What is the Bank of Russia’s forecast of investment trends for 2021–2023?


We believe that investment will increase along with economic recovery. We expect that the growth of gross fixed capital formation will reach 2–4% in 2021, 1.8–3.8% in 2022, and 2–4% in 2023.

QUESTION from TASS Agency:

Good afternoon. My question is about deposits. At a meeting with regional banks held recently, representatives of the banking community suggested increasing the deposit amount subject to income tax from one to three million rubles. What do you think about this? How realistic is this?


I would say that this a question for the Government, the authorities that determine tax policy.

QUESTION from Reuters:

How did the US sanctions affect non-residents’ sales of OFZ bonds in April? How have their OFZ holdings changed, according to recent information?


As regards the OFZ sales by non-residents in April, this outflow was minor. Over the period from 1 to 16 April, non-residents’ sales totalled 101 billion rubles. That said, over the week immediately after the sanctions were announced, OFZ sales amounted to 43 billion rubles. It should be noted that non-residents were selling OFZ bonds not only due to the sanctions, but also because global rates changed. Almost all emerging market economies recorded outflows. As for Russia in particular, the cost or risk certainly increased slightly.


For the thirst time, the USA imposed sanctions on securities that might be potentially issued by the Central Bank. What negative implications could this involve for the Bank of Russia, in your opinion? How does the Central Bank assess the risks of a further tightening of sanctions, specifically their possible extension to state-owned banks? Might banks controlled by the Central Bank be put on the sanction list?


As regards the impact of the sanctions on securities issued by the Central Bank, we do not observe this influence because our securities are issued to regulate banking sector liquidity and are purchased by Russian banks.

As for the risks of further sanctions, it is impossible to give an assessment. The main thing — and I am continuously repeating it — is to be prepared for any developments, any scenarios. Therefore, it is essential to not only maintain current financial stability, but also have buffers, capital cushions, and instruments for the future — these are the tasks we are addressing. In particular, one of the reasons why the sanctions have only limited impact, including on the public debt market, is Russia’s small public debt. It should be kept at a low level in the future as well. It is approximately 20%, which is considerably less than in the majority of countries.

QUESTION from the Grani newspaper, Chuvash Republic

Good afternoon. You have already answered this question to a certain extent. But still, does the Central Bank have any concerns that lending might decline due to the higher key rate and that a larger number of individuals and legal entities might open deposits, rather than invest funds in the real economy?


Thank you for your question. Indeed, this is a matter of widespread concern. I would like to stress once again that our monetary policy is aimed at ensuring such a pace of lending expansion that would help us achieve the inflation target of around 4% and support economic growth close to its potential. Accordingly, when aggregate demand plummets during economic declines, for instance, we need to support a faster increase in lending in order to offset temporary constraints and drive the economy back to a steady growth path. This is exactly what we were doing last year. This is called countercyclical policy. Conversely, when the economy is already bouncing back, lending should expand at a pace corresponding to the economic growth rate.

I would like to emphasise that our forecast assumes that credit dynamics will be positive, that is, both corporate and retail lending will expand.

As regards deposits, they work in the real sector. It is important to understand that when a person deposits funds with a bank, they are not just stored in the bank’s vault unused, but work to help develop the economy. The bank issues loans, thus acting as an intermediary between the depositor and business. Hence, the increased key rate makes ruble-denominated savings, or assets, and deposits more attractive for households as compared with alternatives. As a result, banks have more opportunities to fund their loan portfolios with stable liabilities.

QUESTION from Bloomberg:

I would like to congratulate the Bank of Russia on having moved to a higher level of inflation targeting. Now, you, as many advanced economies do, publish the forecast of the average key rate for the year. This is an important step.

And I have a question in this regard. You forecast a rather high key rate average of 4.8–5.4% this year and an even higher average for 2022: 5.3–6.3%.

You have also raised your inflation forecast, but this increase seems less significant than that for the average key rate. Does this mean that seven leagues at a stride are set to become your standard pace?


Thank you for your appreciation. First, I would like to comment that not all countries publish the forecasts of their policy rates. As far as we know, no other state releases a forecast of the average rate for the year. This is really our unique approach. We believe that the projected path of the key rate is the most informative indicator.

As regards the difference between changes in the inflation forecast and the key rate path, basically, when we respond to elevated inflationary pressure by increasing the key rate in a proactive manner, we thus avoid a persistent deviation of inflation from our target and bring it back to the target beginning from 2022 H2. Accordingly, the policy stance we announced shows that a consistent implementation of inflation targeting policy will return inflation to the target.

QUESTION from Fomag.ru:

You have switched to an increase in the key rate and raised it several times. Actually, this is beneficial for banks since they might now raise their deposit rates. Considering this situation, it would be interesting to know whether it might be difficult to return to a reduction in the key rate when you achieve the inflation target, given that higher deposit rates have already become a trend in banks.


I believe that higher deposit rates are beneficial for households saving money: they will receive higher interest from banks.

As for deposit and loan rates, their level and movements will depend on how the situation will evolve. When inflation stabilises at 4% (and we are taking efforts to achieve this and are confident that will be able to do this), the neutral key rate will equal 5–6%. This will influence interest rates on both deposits and loans. Of course, as regards loan rates, another important factor determining interest rates for ultimate borrowers will be the assessment of a particular borrower’s risks and of the projects planned to be funded with these loans. Speaking of the overall level of interest rates, we believe that we will be gradually moving towards the neutral range of the key rate.

QUESTION from VTimes:

How did President Putin’s message on additional economy stimulus influence the Bank of Russia’s inflation forecast and key rate decision? I mean loans to finance infrastructure projects in regions, developers, new social payments, and so on.


When making our today’s decision, we took into account the estimated amounts of additional measures announced by the Ministry of Finance, among other things. In our opinion, they will not put any additional upward pressure on inflation because these expenditures are planned to be financed using additional non-oil and gas revenues, that is, completely within the framework of the fiscal rule. Hence, we do not see any inflation risks here at the moment.

QUESTION from TASS Agency:

You have stated multiple times that the administrative regulation of prices should be abandoned and said at the Moscow Exchange Forum that damper mechanisms might be extended to other product groups as well. Have you discussed this issue in any way with the Government, or is this, so to speak, beyond your competence? Is there any progress in connection with this proposal?


We do believe that administrative measures should be abandoned faster. As far as I understand, the Government also wishes to switch to market mechanisms of regulation faster. In our opinion, the administrative measures have a very short-term effect. We assess its impact on inflation in 2020 as 0.1 percentage points. In other words, without this administrative regulation, inflation might have been 0.1 pp higher as of the end of the year. Moreover, in Q1 this administrative regulation might contain price growth in these product groups by 0.2 percentage points.

Disappointingly, as we can see, the growth of sugar prices resumed in April and oil prices started to rise even faster. We believe that these measures had only a limited and short-term effect. In the long run, such administrative regulation would distort market signals for manufacturers, which may cause underinvestment in the areas where prices are regulated. Of course, there is an issue of soaring prices for a range of products that are essential for consumers and for socially important goods. We believe that there should be two mechanisms in this regard.

The first one is targeted aid to those who need it. This is the best possible option. The second option is to use various mechanisms smoothing out price volatility in a limited number of cases. These might be dampers and, possibly, floating duties that are applied. These actions should be very accurate and only taken in a limited number of cases where there are obvious cyclical fluctuations and such mechanisms may be used. Otherwise, these methods — although they are more market-based but still rather pseudo-market based — would distort price dynamics. Moreover, this might not only distort price dynamics, but also affect manufacturers’ plans and their readiness to make investments and manufacture particular types of products. We are not discussing any specific mechanisms with the Government. These issues are totally within the competence of the Government, but we are still continuously stating that we need to move to market mechanisms faster.

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