How key rate decisions are made

Key rate decisions are made by the Bank of Russia Board of Directors. It holds eight regularly scheduled key rate meetings a year. After each meeting, the regulator publishes a press release on its website, followed by a press conference where the Bank of Russia Governor addresses questions from reporters.

Four of the eight scheduled meetings are core meetings. In addition to the press release, after each core meeting, the Bank of Russia publishes a medium-term forecast of Russia’s key economic indicators. From April 2021, this forecast includes the projected path of the key rate. These meetings are designated as core because they involve a comprehensive revision of the macroeconomic forecast which may be significantly changed.

Starting from February 2024, the Bank of Russia releases the Summary of the Key Rate Discussion (hereafter, the Summary) approximately one week after each meeting. The Summary covers deliberations about a key rate decision during the quiet period and discussions at the Board of Directors’ meeting. Following its core meetings, the Bank of Russia also publishes a Commentary on the Medium-term Forecast, detailing the assumptions and parameters of the macroeconomic forecast (before the end of 2023, this information was included in the Monetary Policy Report).

Before each key rate decision, prior to the quiet period, the Bank of Russia releases the Regional Economy: Commentaries by Bank of Russia Main Branches report and the results of a macroeconomic survey of leading analysts which contains forecasts of key economic indicators.

Monetary policy does not influence inflation immediately: its effects normally materialise with a lag of three to six quarters. Therefore, when making its key rate decisions, the Bank of Russia considers not only the current economic situation but also inflation and economic forecasts for the next three years, additionally assessing risks of a deviation from the forecast.

Before each meeting, the Board of Directors meticulously updates forecast scenarios and assumptions and prepares analytical materials. This process, called a joint forecasting round, begins about four weeks before a key rate meeting.

Analysts and experts from various departments and regional branches of the Bank of Russia are involved in it, providing a comprehensive perspective on the Russian and global economic outlook.

Timeframe: three to four weeks before a key rate decision.

Principal participant: the Monetary Policy Department (MPD).

Other participants: the Bank of Russia senior executives and the Research and Forecasting Department (RFD).

The MPD monitors all incoming data and significant domestic and international events that may influence the Russian economy and inflation. MPD experts assess whether existing trends align with previous forecasts and whether adjustments are necessary.

Based on this analysis, the MPD updates the assumptions for forecast scenarios. These assumptions include internal and external economic factors that influence Russia’s economy and inflation but are beyond the direct control of the Bank of Russia. For example, an external factor could be Saudi Arabia’s decision to cut oil production, affecting global oil prices, or changes in monetary policy of the USA, China, or the euro area. An internal factor might be the Russian Government’s plan to reduce the federal budget deficit.

The MPD also identifies risks to the baseline forecast — events that could lead to deviations from the baseline scenario. This analysis forms the basis for alternative scenarios.

The MPD Director proposes adjustments to the assumptions and risk assessments to the Bank of Russia Governor and Deputy Governors who may refine the proposals or request further analysis. The RFD Director also participates in these discussions. Following the deliberations, a consensus set of assumptions and risks is developed and further analysed by the MPD and RFD. This consensus set serves as the foundation for calculating forecast indicators under the baseline scenario.

MPD experts prepare short-term (for the next two quarters) and medium-term (for the next three years) economic forecasts using a combination of analytical methods and model-based techniques.

The Bank of Russia’s forecast relies on quantitative models that describe economic dynamics.

The core of the Bank of Russia’s medium-term forecasting system consists of comprehensive forecasting models that capture key macroeconomic interdependencies. They form the key parameters of the Bank of Russia’s medium-term macroeconomic forecast which is published following the core meetings. These models inform projections for inflation, economic growth, monetary indicators, and the balance of payments. They also help estimate the likely key rate path.

Since April 2021, the Bank of Russia has published the projected key rate path as ranges of the average key rate for each calendar year within the forecast period. These projections, as part of the Bank of Russia’s medium-term forecast, reflect the likely monetary policy stance, assuming economic developments align with the baseline forecast. For more details, see the methodological note.

The overview of the model complex is outlined in the Forecasting and models subsection which also features related studies and analytical notes by Bank of Russia experts. Additionally, economic research by the regulator’s specialists is published in the Research section on the Bank of Russia website, the Russian Journal of Money and Finance, and other academic journals such as Voprosy Ekonomiki (Economic Issues) and Prikladnaya Econometrika (Applied Econometrics).

Forecasting models are essential tools in formulating the Bank of Russia’s economic projections. However, the final forecast is not a mechanical output from the model. Expert judgment plays a critical role, particularly in assessing factors that models may not fully capture. Ultimately, the Bank of Russia’s forecast represents a consensus view of the Board of Directors regarding future economic developments.

Timeframe: two weeks before a key rate decision.

Principal participant: the MPD.

Other participants: the RFD, other departments of the Bank of Russia, regional branches of the Bank of Russia, ministries, and agencies.

At this stage, working meetings are held to align and refine the estimates of key economic indicators and forecast parameters. These discussions are crucial for analysing the interplay between monetary policy and other regulatory areas.

Bank of Russia experts in regional branches analyse regional statistics and engage with local authorities and businesses to gather up-to-date information on the regional economic situation. This approach allows a more detailed analysis of issues that may be ambiguous at the federal level, while also identifying emerging trends and risks not yet reflected in official statistics.

A key source of high-frequency economic data is the Monitoring of Businesses conducted in collaboration with regional branches since 1998. Currently, nearly 15,000 businesses from various industries participate in this voluntary survey. It provides timely insights into the health of the Russian economy, including assessments of output, demand, and prices, often ahead of official statistics. Findings from this monitoring are published in the Regional Economy: Commentaries by Bank of Russia Main Branches report prior to the quiet period and serve as an input to the key rate discussion.

Additionally, the MPD, together with the RFD, regularly meets with representatives from the Ministry of Economic Development and the Ministry of Finance of the Russian Federation to discuss the economic situation and the macroeconomic measures taken by the Government, as well as their potential impact on the Bank of Russia’s forecast. If necessary, meetings with other ministries, such as the Ministry of Energy and the Ministry of Labour and Social Protection, as well as banks, businesses, and industry associations, may also take place.

To gather insights from external experts, the Bank of Russia conducts a macroeconomic survey of leading analysts prior to each meeting. This survey aggregates medium-term forecasts for key economic indicators which are then published on the Bank of Russia website before the quiet period.

Such surveys are a common practice for central banks globally, allowing them to compare their expectations with those of external analysts. By publishing these results, the Bank of Russia provides the public with a representative consensus of expert forecasts.

The Bank of Russia also monitors market participants’ expectations and may provide public comments on its own view of the macroeconomic situation. These comments, or verbal interventions, may be prompted by the need to clarify earlier statements or address significant discrepancies between the Bank of Russia’s and market participants’ estimates of the economic outlook and an upcoming key rate decision. However, these interventions are not mandatory.

Timeframe: one week before the decision.

Principal participants: the Bank of Russia Governor, First Deputy Governors and Deputy Governors responsible for the key areas of the Bank of Russia’s activity, the Director of the MPD, directors of other Bank of Russia departments, and heads of regional branches.

The quiet period spans the seven days leading up to a key rate decision (from 13.30 Moscow time on the seventh calendar day before the decision to 13.30 on the decision day when a press release is published). During this period, Bank of Russia representatives are prohibited from making any statements or publications on monetary policy or the macroeconomic forecast that could influence financial market expectations about the upcoming decision. Financial markets are sensitive to central bank communications before policy decisions, and therefore, it is essential to minimise the risk of misinterpretation and avoid increased market uncertainty or volatility. During the quiet period, no public meetings on monetary policy issues are held. This practice is common among central banks worldwide.

The Bank of Russia Governor, competent Deputy Governors, department directors, and heads of the Bank of Russia’s Main Branches hold internal meetings during the quiet period. At these meetings, the MPD Director presents the analysis of the macroeconomic situation and the final calculations of the forecast scenarios. Based on these data, the Director proposes key rate decision options to the Board of Directors and outlines the key rate path anticipated over the forecast horizon. The RFD Director also presents the assessment of the economic situation, including alternative forecast calculations. The heads of the seven Main Branches contribute to the discussion, providing insights into regional economic conditions.

Each participant in the meeting offers a reasoned opinion on two matters: 1) what decision option they support, and 2) what signal should accompany the decision.

A monetary policy signal is a crucial element of the key rate decision. It indicates the key rate path expected under the baseline scenario. The signal also reflects the assessment of factors that could influence future key rate decisions. However, the signal is not a commitment of the Bank of Russia as its realisation depends on whether the situation unfolds as anticipated. Giving a signal is a common practice among inflation targeting central banks.

Timeframe: the day of the decision.

Principal participants: the Bank of Russia Board of Directors.

Other participants: the Director of the MPD, the Director of the Public Relations Department (PRD), and representatives of the Ministry of Finance and the Ministry of Economic Development of the Russian Federation.

The Bank of Russia Board of Directors meets to make its key rate decisions on Fridays, according to a preapproved schedule. The new key rate takes effect on the next business day following the decision, allowing banks and financial market participants to adjust to the change.

The Director of the MPD reports on the current economic situation, forecast scenarios, and potential decisions regarding the key rate and its future path to the Board of Directors. The report provides the most up-to-date information available as of the meeting day. Following the report, the participants discuss the principal issues.

Additionally, the Bank of Russia invites representatives from the Ministry of Finance and the Ministry of Economic Development to take part in the meeting. They may respond to questions and provide comments on economic policy matters within their ministries’ purview.

The Board members then share their opinions on the current situation, forecast scenarios, and a possible key rate decision. After the deliberations, they vote on the decision and discuss the draft press release to approve its final version. The invited participants do not take part in the voting.

Although the decision is voted on, it is always reached by consensus. The Bank of Russia Governor facilitates the discussion to bridge differing views and ensure the most appropriate decision is made. In the event of a tie vote (and only in this case), the Governor casts the deciding vote. However, this is more of a technical rule as the discussion is generally aimed at reaching a consensus.

The Bank of Russia adheres to a ‘single voice’ policy in its communication. This means that all representatives of the Bank of Russia express a single and consistent view to the public. Many central banks follow this principle.

The press release announcing the key rate decision, along with the macroeconomic forecast after the core rounds, is published at 13.30 Moscow time, marking the end of the quiet period.

At 15.00 Moscow time, the Bank of Russia Governor holds a press conference to publicly explain the decision made. The statement is broadcast live on the Bank of Russia website in Russian and English, as well as on its Telegram channel and VK page in Russian. During the press conference, the Governor may elaborate on specific factors influencing the decision and provide additional insights into the Bank of Russia’s forecast, and answers questions from reporters.

Timeframe: before the next decision.

Principal participants: senior executives of the Bank of Russia, the MPD, the RFD, the PRD, and the Bank of Russia’s regional branches.

The Bank of Russia communicates its key rate decision not only on the day of the decision but also throughout the period leading up to the next quiet period. The Bank of Russia engages with the public, reporters, government representatives, businesses, and the expert community, including in Russian regions, to clarify the logic and rationale behind the decision. The most intensive communication occurs during the two weeks following the key rate decision.

Bank of Russia representatives hold meetings with financial institutions, analysts, and the expert community to answer questions on monetary policy and gather feedback.

Experts from the Bank of Russia’s regional branches, in collaboration with the MPD, hold meetings in Russian regions with representatives of the real sector, banks, local authorities, and universities, as well as give interviews to regional media. This targeted communication ensures that the Bank of Russia’s policy is understood at the regional level and helps influence inflation expectations more effectively.

Starting in February 2024, approximately one week after each meeting, the Bank of Russia releases the Summary of the Key Rate Discussion. This document outlines the deliberations about the key rate decision during the quiet period and at the Board of Directors’ meeting. It details participants’ views on the economic situation, alternative decision options, arguments for and against them, and the rationale behind the chosen option. The Summary presents various policy options discussed without attributing them to any particular participant.

Following the core meetings, alongside the Summary, the Bank of Russia also publishes its Commentary on the Medium-term Forecast, detailing the assumptions and parameters of the macroeconomic forecast (prior to the end of 2023, this information was included in the Monetary Policy Report).

During the inter-meeting period, the Bank of Russia senior executives give interviews to media and speak at meetings, conferences, and forums to comment on the Bank of Russia’s monetary policy decisions and the broader economic situation. The Bank of Russia website features regular analytical materials in the Analytics section covering key topics, such as inflation, inflation expectations, monetary conditions and the monetary policy transmission mechanism, monitoring of businesses, and the balance of payments.