The board of the Central Bank of Russia (CBR) at the policy meeting of February 14 resolved to keep the key interest rate at 21%. As followed by bne IntelliNews, this is in line with expectations, as keeping the key rate unchanged was the broad market consensus.

As followed by bne IntelliNews, the CBR's board at the final policy meeting of 2024 resolved to maintain the key interest rate at 21%, defying the expectations and despite stubborn inflation approaching double digits by the end of the year.

Inflation is still trending outside of the CBR’s guidance, far from the target 4% at double-digit level of 10%, but the regulator was expected to be encouraged by a sharp decline in both corporate and retail lending at the end of 2024.

In the press-release following the decision the CBR admitted that “current inflationary pressures remain high” and the economy remains overheated as “the growth of domestic demand continues to significantly outpace the expansion of the supply of goods and services”. 

However, the CBR indeed pointed to “the cooling of credit activity” that has become “more pronounced”, and noted the growing population's propensity to saving as Russians are preparing to earn record interest on banking deposits in 2025. The CBR also lowered its forecast for loan growth to the economy for 2025-2026.

The CBR believes that “the tight monetary conditions that have been achieved” so far are enough to resume “the disinflation process and a return of inflation to the target in 2026”.

But the press-release still warned that hiking the rate remains on the table as at the next meeting the regulator will still “assess the expediency of raising the key rate at the next meeting, taking into account the speed and sustainability of the decline in inflation”. 

The next policy board meeting is scheduled for March 21 2025.

According to the CBR 's forecast, given the ongoing monetary policy, annual inflation will decline to 7%-8% in 2025, return to 4% in 2026 and be on target thereafter. In the baseline scenario, the CBR expects inflationary pressures to begin to gradually decline in the coming months under the influence of “cooling lending and high savings activity”, according to the press-release.

The CBR also traditionally warned against overspending in the budget, noting that while fiscal policy “normalisation in 2025 will have a disinflationary effect, changes in the parameters of the budget policy may require adjustments to the monetary policy being pursued”.

The latest bombshell breakthrough in communication between the new US administration of President Donald Trump and Vladimir Putin could have also given another reason for optimism. Ruble exchange rate strengthened to the best in months and demand for federal ruble OFZ bonds soared following the Trump-Putin call, but the CBR press-release refrained from commenting on it.