Russia Interest Rate

The Bank of Russia held its key interest rate unchanged at the record high of 21% in its February 2025 decision, in line with expectations, and stated that it awaits more price data to assess whether a rate hike may be appropriate next month. The bank stated that inflationary pressure remain too high and demand continues to outstrip domestic capacity, in line with its previous statement, when the central bank held the rate despite the earlier signal of hikes after CBR Governor Nabiullina met with President Putin and business leaders, which had vocally opposed high borrowing costs. The CBR reiterated that consumer inflation expectations continued to increase despite record-high borrowing costs, underpinned by higher-than-expected growth and record-low unemployment rates, as Putin’s military mobilization triggered a diaspora of working-aged men. The latest inflation data showed that annual price growth was at 10% in early February.

The Bank of Russia held its key interest rate unchanged at the record high of 21% in its December meeting, surprising markets that expected a 200bps rate hike to 23%. The decision took place following reports that CBR Governor Nabiullina recently talked with President Putin and Russian business leaders, who have been vocal against high interest rates despite soaring inflation. The central bank cited low credit activity as the warrant for the pause in rate hikes, but reiterated that underlying inflation continued to rise amid higher expectations from households and business, driving the bank’s inflation forecast to rise for 2025 and 2026. The central bank also noted that the significant weakening of the ruble, unbalanced budget spending, and the ongoing labor force crisis contributed to soaring inflation. November data showed that annual headline inflation was at 8.9%, but early forecasts from the CBR have December's print near 9.5%, translating to the highest since February 2023.

The Bank of Russia raised its key interest rate by 200bps to 21% in its October 2024 meeting, above market expectations of a 100bps increase, and signaled that it is likely to continue raising interest rates in its upcoming December meeting. The decision lifted the key interest rate to its highest on record, surpassing the extraordinary move that lifted the rate to 20% in response to the crash of the ruble following Russia’s invasion of Ukraine in 2022. The central bank noted that inflation has run much higher than expected in the earlier quarter as domestic demand outstripped the capacity of the Russian economy, which continues to be limited due to Western sanctions and a labor force crisis amid the diaspora of military-aged males since President Putin's military mobilization. Additionally, the marked increase in inflation expectations was magnified by a deterioration in trade conditions and expansionary fiscal policy in the 2024 Federal Budget.