Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting on 21 March 2025

Good afternoon. Today, we have made the decision to keep the key rate at 21% per annum.

Current price growth rates are going down gradually, which is largely the result of the Bank of Russia’s restrictive monetary policy. The slowdown in inflation has also been promoted by improved sentiment in the markets and a stronger ruble. Nevertheless, price pressures remain high and inflation expectations are still elevated. Hence, we need to maintain tight monetary conditions for a long period. Our further decisions will depend on how fast and sustainably inflation is decelerating and whether this is sufficient to bring it back to 4% in 2026. If not, we may additionally raise the key rate, although the probability of such a move has decreased.

I would now dwell on the reasons behind our today’s decision.

Firstly, inflation stays high.

To a great extent, the high rate is explained by persistent demand-side pressures, which is most obvious from the underlying measures of inflation. Although core inflation is decelerating, it stays close to 10%.

At the same time, current price growth has been gradually slowing down since the beginning of the year. And while price growth remains high in services and the food segment, non-food inflation has decelerated to moderate rates. In the first place, this slowdown has become evident in the segment of durables, namely cars, household appliances, and furniture. Prices in these categories are most responsive to monetary policy and the exchange rate. A reduction in sales in these segments, which is confirmed by recent monitoring of businesses, also proves the effects of monetary policy. Companies report a rise in the stocks of electronic devices and cars. In other words, retailers expected higher demand than is currently observed.

Alongside our monetary policy, price dynamics have also been affected by a stronger ruble. Further developments in the foreign exchange market will depend on actual changes in the external environment. It would be now premature to draw any conclusions about how strongly this factor might influence future inflation dynamics.

Households’ inflation expectations have continued to trend downwards in March, decreasing to 12.9%, which is the lowest level since last September. The decline in companies’ price expectations has accelerated. However, inflation expectations are still elevated, which is preventing inflation from decelerating faster.

Secondly, the economy.

At the beginning of the year, economic activity slowed down slightly compared to the end of 2024. This is in line with our February forecast.

Nevertheless, consumer activity remained high in January, additionally driven by a faster increase in wages at the end of 2024. This acceleration was associated with earlier bonus payments that some companies made in December 2024 instead of 2025 Q1 due to tax changes. This is why it will only be possible to assess wage dynamics more accurately after we receive the statistics for 2025 Q2. Preliminary data on consumption in February and March are mixed.

There are the first signs of a moderation in investment demand. In particular, we have been recording a reduction in sales of freight vehicles and the demand for construction materials. Increasingly more companies are postponing their investment projects. Nevertheless, they do not suspend the projects launched earlier, which is possible due to the profit accumulated over previous years, among other things. As of the end of 2024, companies’ profits declined. However, compared to historical levels, the amount of profit is rather high both in the economy as a whole and in most of industries. Now, this profit may be a source of financing for current investment projects.

The labour market remains tight, although there are now more signs of decreasing labour shortages. This is confirmed by recent monitoring of businesses. In addition, the number of CVs per one vacancy has been growing.

The signs of a moderate slowdown in domestic demand growth and a gradual easing in the labour market indicate that the economy is rather on a soft landing path, without sharp fluctuations.

Thirdly, monetary conditions.

Price monetary conditions have eased slightly, whereas non-price conditions have remained tight. Yield curves in the money market and the government bond market have shifted downwards, affected by market participants’ expectations of a possible improvement of the geopolitical situation. Furthermore, nominal interest rates in many segments have notably decreased. However, considering the simultaneous decline in inflation expectations, monetary conditions in real terms have changed not that significantly.

Lending amounts have changed more substantially in both the retail and corporate segments. The slowdown has been most pronounced in consumer lending, primarily in unsecured lending. Corporate lending has been expanding at a moderate pace, but its dynamics have been noisy due to elevated budget expenditures at the beginning of the year. Many companies use the funds received from the budget to repay the loans raised earlier. Overall, lending growth rates are close to the lower bound of our baseline forecast.

In recent months, lending growth rates have been notably below last year’s peaks. However, this cannot be interpreted as a continuing tightening of monetary conditions because demand is affected not only by lending but also by budget payments. I would like to remind you that the resulting indicator characterising the combined effect of credit and budget funds is money supply. In February, its expansion slowed down, albeit not as appreciably as in lending, which was because budget expenditures remained high.   

I would briefly talk of the budget. Budget expenditures were elevated in January and February. As was explained by the Ministry of Finance, that was associated with earlier financing of expenses and advance payments under government contracts at the beginning of the year. The Ministry of Finance is nonetheless determined to decrease the structural primary deficit to zero by the end of 2025, which implies a gradual deceleration of budget spending to the seasonal norm in the coming months. We take into account these plans and assume that the budget will have a disinflationary effect this year.

Now, I would like to speak of external conditions.

Export dynamics have been rather stable in recent months, whereas the expansion of imports has been decelerating due to restrictive monetary policy. As a result, the surplus of the balance of trade has increased, which, among other things, has strengthened the ruble. Overall, ruble assets have become more attractive owing to sustainably high yields in rubles and a more positive estimate of geopolitical risks by market participants. Nevertheless, it would be premature to predict how stable the changes in external conditions will be. 

As regards risks to the baseline scenario.

The balance of risks has generally remained unchanged, with proinflationary factors prevailing. In the first place, these are risks associated with the labour market and inflation expectations. As to disinflationary factors, this is the risk of a more considerable slowdown in lending.

The principal area of uncertainty is the external environment as its further changes might have both proinflationary and disinflationary effects. Proinflationary factors include growing protectionism. A disinflationary effect is possible if geopolitical tension eases and sentiment in financial markets improves sustainably.

Winding up, I would like to comment on our future decisions.

Further developments are highly uncertain, including external conditions being one of the reasons for that. We can see that market participants’ expectations and sentiment are affected by the revision of their assumptions about a possible improvement of geopolitical conditions. Nevertheless, we build our monetary policy on sustained trends, fundamental factors, solid facts and a conservative approach to risk assessment. It is crucial to stick to this approach to confidently bring inflation back to 4% in 2026, regardless of further external developments. According to our estimates, current inflation trends require a long period of maintaining tight monetary conditions. If we need to raise the key rate to be able to return inflation to the target, we will be ready to do this, although the probability of such a move has decreased.

Thank you for attention.