Moscow, 21 March 2025
On 21 March 2025, the Bank of Russia Board of Directors decided to keep the key rate at 21.00 percent per annum. Current inflationary pressures have decreased but remain high, especially underlying ones. Domestic demand growth is still significantly outstripping the capabilities to expand the supply of goods and services. Nevertheless, lending growth remains subdued, and households’ propensity to save remains high.
The Bank of Russia estimates that the achieved tightness of monetary conditions creates the necessary prerequisites for returning inflation to the target in 2026. Achieving the inflation target will require a long period of maintaining tight monetary conditions in the economy. The Bank of Russia will continue to assess the speed and sustainability of the decline in inflation and inflation expectations. If disinflation dynamics do not ensure achieving the inflation target, the Bank of Russia will consider raising the key rate. According to the Bank of Russia’s forecast, given the monetary policy stance, annual inflation will decline to 7.0–8.0% in 2025, return to 4.0% in 2026 and stay at the target further on.
In January — February, the current seasonally adjusted price growth went down and averaged 9.1% in annualised terms after 12.0% in 2024 Q4. The similar indicator of core inflation averaged 10.2% after 12.1% in the previous quarter. Underlying inflationary pressures have decreased to a lesser extent than the overall consumer price index, reflecting still strong domestic demand. The current price growth in February and early March was partly constrained by a stronger ruble since the beginning of the year. As of 17 March 2025, annual inflation was 10.2%.
Inflation expectations of households and businesses continue to decline, which is also due to the appreciation of the ruble. Long-term expectations calculated using financial market instruments also declined. However, analysts slightly increased their inflation forecasts for 2026. In general, inflation expectations remain elevated. This increases the inertia of underlying inflation.
According to the baseline scenario, the Bank of Russia expects that inflationary pressures will continue to decline in the coming months. This will be supported by a cooldown in lending and high saving activity.
The upward deviation of the Russian economy from a balanced growth path is still significant. High domestic demand is backed up by rising household incomes and budget expenditures. However, high-frequency data and surveys of businesses indicate more moderate growth in economic activity in early 2025 compared to 2024 Q4.
The labour market remains tight. Unemployment is at its record lows. However, there is growing evidence of easing tightness. According to surveys, the share of enterprises experiencing labour shortages continues to shrink. In addition, labour demand in certain industries has been decreasing with a reallocation of employees across industries. Meanwhile, wage increases remain high and continue to outpace labour productivity growth. The December statistics on wages were also affected by partial rescheduling of annual bonus payments from 2025 Q1. This supported consumer demand at the beginning of 2025.
In general, the emerging trends in the dynamics of economic activity create preconditions for a gradual return of the economy to balanced growth.
Monetary conditions remain tight under the impact of the monetary policy pursued and autonomous factors. Although nominal interest rates went down after the February meeting in most segments of the financial market, their decrease in real terms was not so significant, given the lower inflation expectations. Non-price bank lending conditions remain tight.
Despite some reduction in deposit rates, the inflow of household funds into current accounts and time deposits remains high. Yet, growth in incomes allows households to increase both savings and consumption. Lending activity remains moderate. The retail loan portfolio of banks has been shrinking since December 2024. The current growth rates of corporate lending are generally moderate. However, elevated budget expenditures have significantly affected their dynamics in recent months.
Over the medium-term horizon, the balance of inflation risks is still tilted to the upside. The key proinflationary risks are associated with the ongoing upward deviation of the Russian economy from a balanced growth path and high inflation expectations, as well as with the deterioration in the terms of external trade. Disinflationary risks involve a more significant slowdown in lending growth and domestic demand under the impact of tight monetary conditions. If geopolitical tensions ease, external conditions may improve, which might have a disinflationary effect.
The Bank of Russia takes into account the announced parameters of fiscal policy. Its normalisation in 2025 will have a disinflationary effect. Changes in the fiscal policy parameters may require an adjustment in the monetary policy pursued.
On 2 April 2025, the Bank of Russia releases the Summary of the Key Rate Discussion.
The Bank of Russia Board of Directors will hold its next key rate meeting on 25 April 2025. The press release on the Bank of Russia Board decision and the medium-term forecast are to be published at 13.30 Moscow time.
Further information
Source – CBR