Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting on 25 April 2025
Good afternoon. Today, we have made the decision to keep the key rate at 21% per annum.
Price pressures have been easing gradually. We assume that this trend will continue and annual inflation will return to the target of 4% in 2026. Nevertheless, risks still exist. We need to maintain tight monetary conditions for a long period to bring inflation down. Our further moves will depend on how quickly and sustainably inflation will be decelerating.
I would now dwell on the reasons behind our today’s decision.
Firstly, inflation.
Its annual rate in March was slightly above 10%, while current price growth slowed down to about 7% in annualised terms. This level is still high and feels uncomfortable for both households and businesses. Nonetheless, owing to our monetary policy, disinflation will continue.
Today, price growth is decelerating unevenly across consumer product groups. In March, the growth rates of non-food prices declined below 2% in annualised terms, whereas those of food and service prices decreased less notably and are so far close to 10%. This dispersion may be explained by different time lags of the key rate impact on various consumer market segments. Compared to service and food prices, non-food prices react more quickly to key rate changes, which is because durables are more frequently purchased on credit. High interest rates have caused a reduction in the loan portfolio and the demand for credit. As a result, the rise in non-food prices has slowed down significantly. As regards services and food, their prices are less responsive to changes in consumer lending since the demand for them depends primarily on income dynamics. Furthermore, driven by higher incomes in recent years, the demand for services has been increasing faster than that for products, which also explains higher price growth rates in this group.
As long as the price growth deceleration is not equally significant across all groups of goods and services, it would now be premature to draw any conclusions as to how sustainable the slowdown in headline inflation is. As demand cools down, the variance in price dynamics across groups will be decreasing.
A high key rate is moderating inflation via several channels simultaneously. I have already spoken of the reduction in demand through higher loan rates. The deposit channel remains effective as well, encouraging savings. The third, foreign exchange channel is also contributing to the deceleration of inflation. Tight monetary policy contains the demand for imports and makes ruble assets more attractive. This contributed to the ruble strengthening in the first quarter of the year, which has been easing price pressures as well. All these are sustainable factors supporting disinflation. In addition, the exchange rate has been propped up by better sentiment in financial markets that has been improving since the beginning of the year. However, in contrast to tight monetary policy, this factor might turn out to be more short-term.
Despite the slowdown in current price growth, inflation expectations have barely changed since our meeting in March, while a further decrease in inflation expectations is critical to ensure sustainable disinflation.
Our inflation forecast remains unchanged. Prices will rise by
Secondly, the economy.
GDP continues to grow although at a more modest pace. This is proven by both statistics and a number of high-frequency indicators. In particular, companies participating in our monitoring now give more moderate estimates of the current output of goods and services.
After a certain acceleration in January, the growth of consumption has slowed down. Due to the time lags I have already mentioned, a slower rise in demand is more noticeable in the segment of durables but has not yet become that obvious in catering and tourism, for example.
Investment activity is close to the high levels recorded last year. The vast majority of businesses participating in our monitoring plan to maintain or increase the amount of their investment this year. This topic is covered in our Regional Economy report. Nonetheless, the growth rates of investment will be apparently declining, which is confirmed by certain leading indicators, such as the sales of trucks and agricultural machinery as well as the utilisation rates of transport infrastructure.
Staff shortages are still a factor constraining the expansion of investment. Nevertheless, our monitoring shows some signs of an easing in the labour market. First sign, a number of companies have been decreasing their demand for labour, which is accompanied by a reallocation of workforce to other companies or sectors. Yet, unemployment stays at record lows. Second sign, enterprises plan a more moderate indexation of wages than over the previous two years.
Thirdly, monetary conditions have remained nearly unchanged, ensuring the tightness needed to rein in inflation.
Yield curves in the money market and the government bond market have shifted upwards since our previous meeting. This is largely because market participants have revised their expectations about the key rate path upwards.
High-frequency data for March suggest a slight decrease in deposit and loan rates. It is worth emphasising that we not only track nominal interest rates but also analyse them taking into account inflation expectations. In the first quarter of the year, nominal rates and inflation expectations both declined. As a result, there was no notable change in price conditions.
In March, credit activity remained subdued. Mortgage and corporate lending expanded slightly, whereas unsecured consumer lending contracted. In March, we said that lending dynamics were significantly affected by budget spending. Today, we can see that the impact of this factor has weakened, but lending growth continues to be moderate. I would like to stress that modest dynamics in lending are associated with lower demand for credit rather than limited credit supply by banks. Banks have sufficient capital cushions. However, banks have decreased their risk appetite and, therefore, prefer a more conservative approach to selecting borrowers.
Households’ saving activity has remained high despite a certain decline in deposit rates.
Budget spending in March was closer to its seasonal norm. The expansion of money supply has slowed down, with its current growth rates being consistent with the goal of returning inflation to 4%.
Now, I would like to speak of external conditions and changes in our forecast.
Since our previous meeting, the revision of import tariffs by major economies has been the main issue. Our updated forecast assumes a slower expansion of the world economy. Lower global demand will drag down commodity prices. This is why we have adjusted the forecast crude oil price accordingly. We assume that it will be five US dollars per barrel lower this year. The forecast of exports has also been decreased somewhat. The dynamics of imports will be more modest as well amid tight monetary policy.
As to the forecast for the Russian economy, the developments are generally close to our February scenario. Our April forecast contains only minor revisions in relation to foreign trade.
As regards risks to the baseline scenario.
One of the main risks is a more considerable cooling in the world economy due to trade wars. It is not just about how significantly import tariffs will ultimately increase, but also about the persistent uncertainty in markets caused by these decisions. All this is complicating investment planning. If additional risks associated with tariffs materialise, crude oil prices are likely to drop further.
Moreover, there are still risks related to the labour market and inflation expectations. Inflation has been exceeding the target for the fourth consecutive year, and the mere fact of this causes increased inertia that prevents price growth rates from declining fast.
Disinflationary risks have barely changed since our previous meeting.
An essential factor notably influencing our decisions is fiscal policy. Our baseline forecast still assumes the return to the fiscal rule this year, which means that the budget policy will have a disinflationary effect. Taking into account the current developments in global markets, the Ministry of Finance notes that the fiscal rule might need adjustment. If the cut-off oil price is reduced, this might be an additional disinflationary factor. More importantly, such a revision will make the fiscal policy stance more robust in the long term in a scenario implying less favourable conditions in the global energy commodity market. I would like to stress that we always take into account any notable modification in fiscal policy and adjust our monetary policy accordingly.
Winding up, I would like to comment on our future decisions.
We will maintain tight monetary conditions for a long period. This is reflected in our forecast of the average key rate for this year that will be in the range of
Thank you for your attention.