The decision to maintain the key rate at 21% aligned with both our expectations and the consensus forecast. The regulator's rhetoric turned out to be slightly more hawkish than we anticipated at the start of the week. This may partly be due to the Bank's desire to offset the recent easing of monetary conditions, caused by optimism regarding reduced geopolitical tensions. We continue to see room for rate cuts to 16% by the end of the year, given the current tightness of monetary conditions. (chart)

Key Rate Unchanged Despite Higher Inflation Forecast

One notable aspect is that the Bank of Russia raised its inflation forecast for the end of 2025 by 2.5–3.0 percentage points (to 7.0–8.0%) and its economic growth forecast by 0.5 percentage points (to 1.0–2.0%), yet kept the rate unchanged. The projected key rate path has also been revised higher (to 19.0–22.0%), but we place less emphasis on this projection. The reason is that current monetary conditions remain tight, especially considering the impact of stricter banking regulations, which continue to cool credit activity.

Has the Key Rate Peak Been Reached?

We believe today's decision confirms our earlier assessment that the Bank of Russia has moved away from an uncompromising fight against inflation since December. Instead, the regulator has adopted a more balanced approach to inflation targeting, taking into account the costs of additional monetary tightening for the economy and its sectors. This strengthens our confidence that the key rate peak has already been reached (barring major negative shocks), despite the moderately hawkish guidance suggesting that the Bank may still consider raising rates at its next meeting.

At the same time, the regulator's approach is now more forward-looking. As a result, future credit activity dynamics are becoming at least as important—if not more important—than inflation data over the coming months.

Two Key Takeaways from the Press Conference

1. Dovish Signal: The "inertia" of inflation processes was cited as the rationale for raising the 2025 inflation forecast. This suggests that the Bank of Russia is relatively tolerant of the current pace of price increases.
2. Hawkish Signal: The Bank downplayed the recent slowdown in credit activity, attributing it to early debt repayments due to advance budgetary payments. In this sense, the budget is absorbing some of the costs of high interest rates, which is not inherently inflationary. However, if credit growth accelerates in the coming months as this effect wears off, it would be a warning sign.

Will Monetary Policy Be Eased in 2024?

We believe so. We maintain our forecast for the key rate to decline to 16% by year-end. Unlike a year ago, today's monetary conditions are genuinely tight, and there is a stronger case for a shift to neutral fiscal policy.

The timing of rate cuts will largely depend on how quickly the effects of the budget stimulus fade. Our baseline forecast remains that the easing cycle will start in Q2 2025, with June being the most likely scenario. However, we now acknowledge risks that the first rate cut may be delayed to July 2025 (for reference, the Bank of Russia’s forecast implies rate cuts beginning in September).

On Geopolitics: Almost No Mention

Interestingly, the official statement contained no reference to potential changes in the geopolitical landscape or to the ruble’s recent appreciation in the risk section. In our view, if recent events and market reactions influenced today's rhetoric, it was only in the direction of greater hawkishness—primarily due to a perceived easing in monetary conditions.

During the press conference, the Governor of the Bank of Russia provided minimal commentary on geopolitical issues. This serves as a reminder that the regulator's outlook assumes a status quo in geopolitical tensions and sanctions. We do not attempt to predict the outcome of renewed Russia-US political dialogue but note that changes in the external environment following these efforts could be significant—either positive or negative—compared to the situation before Trump took office.

Given this uncertainty, future monetary policy decisions will likely be more independent of the Bank of Russia’s internal assessment of economic conditions than they have been over the past year—simply because the external situation itself may change dramatically.

 

Key Parameters of the Medium-Term Forecast
Indicator	Previous Forecast	Revised Forecast
Inflation (end-2025, %)	4.5–5.5%	7.0–8.0%
GDP Growth (2025, %)	0.5–1.5%	1.0–2.0%
Key Rate Forecast (2025, %)	16.0–19.0%	19.0–22.0%
Source: Bank of Russia, Renaissance Capital estimates

 

Conclusion

• The Bank of Russia has adopted a more balanced monetary approach, shifting away from aggressive inflation targeting.
• Geopolitical factors were notably absent from the official communication, suggesting that external risks are not currently factored into policy decisions.
• The key rate has likely peaked at 21%, with a gradual easing expected to begin in Q2 2025, possibly as early as June.
• Credit growth and fiscal policy will be crucial indicators in the coming months, potentially influencing the timing of the first rate cut.