MOSCOW, December 20. /TASS/. Russia’s Central Bank has decided to keep its key rate at 21% per annum contrary to analysts’ projections, noting though that it will assess the need of raising the rate at the next meeting.
"On December 20, 2024, the Bank of Russia Board of Directors decided to keep the key rate at 21% per annum. Monetary conditions tightened more significantly than envisaged by the October key rate decision. This is the result of the effects of factors autonomous from monetary policy," the Central Bank said in a press release following its board meeting on the key rate.
"Given the notable increase in interest rates for borrowers and the cooling of credit activity, the achieved tightness of monetary conditions creates the necessary prerequisites for resuming disinflation processes and returning inflation to the target, despite the elevated current price growth and high domestic demand," the regulator said.
Meanwhile, the balance of inflation risks over the medium-term horizon is still significantly tilted to the upside, although certain disinflationary risks have increased. "The key proinflationary risks are associated with persistently high inflation expectations and the upward deviation of the Russian economy from a balanced growth path, as well as with a deterioration in the terms of foreign trade. Disinflationary risks involve a faster slowdown in lending growth and domestic demand under the impact of tightening of monetary conditions," the press release said.
The Bank of Russia also stressed that it will assess the need for a key rate increase at its upcoming meeting "taking into account further lending and inflation dynamics."
The Russian economy grew in October-November at a rate close to that in the third quarter of 2024 according to high-frequency data, while its upward deviation from a balanced growth path remains significant, which is also evidenced by high current inflationary pressures. High domestic demand is still the main driver of growing economic activity.
That said, the cooling of credit activity has already encompassed all segments of the credit market. In turn, growth in interest rates supports a high propensity of economic agents to save. "In November, growth in retail lending nearly stopped. For the first time since the beginning of 2024, corporate lending growth decelerated significantly. The current intentions of banks to expand lending, taking into consideration, among other things, the current demand from borrowers, create the conditions for a notable cooling of lending activity in 2025," the regulator said.
According to the Bank of Russia, given the monetary policy stance and the effects of autonomous factors, as of the end of 2025, total lending growth may be close to the lower bound of the October forecast range of 8-13%.
Meanwhile, the labor market remains tight, with unemployment having once again dropped to a new historical low. "Rising wages continue to outpace growth in labor productivity. Concurrently, demand for labor force in certain industries has been decreasing, and there has been a reallocation of employees across industries. This may indicate a slight reduction in the labor shortage. This trend is also proved by the decreasing number of vacancies," the Central Bank said.
Annual inflation in Russia will decline to 4% in 2026 and it will stay at the target further on, according to the press release.