Russian Central Bank preserves benchmark interest rate at 21% level.
Revised Base Article:
The Bank of Russia's bigwigs recently left the key rate stuck at 21%, during a meeting on March 21st. This move follows rate hikes in October 2024 and has stood firm without change at subsequent gatherings in December and February.
The bank's mouthpiece explained the reason behind this decision: although inflationary pressures have eased, they still hover at lofty heights. Domestic demand is galloping ahead, outpacing the ability to ramp up production of goods and services. Moreover, the public continues to hoard their cash, while lending is being cramped. The price surge in January and February clocked in at 9.1% on an annual basis.
To hit the target inflation figures (a target of 4-5% in 2025 and 4% in 2026), the CB plans to keep the reins tight on monetary policy. This means they're not crossing their fingers for any rain checks on further rate hikes.
The next meeting of the Bank of Russia's board to discuss the key rate is scheduled for April 25th, 2025.
In a twist, the Accounts Chamber plans to investigate the impact of the CB's key rate on the economy, budget, and inflation. Boris Kovalchuk, the head honcho of the control body, outlined this plan during a plenary meeting at the State Duma on March 20th.
Kovalchuk pointed out that between June 2023 and December 2024, the key rate had nearly tripled. It's misleading to focus solely on the rate's impact on inflation. For instance, its size affects the servicing of public debt (a whopping 3.2 trillion rubles in 2025, more than a third higher compared to 2024), and it boosts the state's obligations for subsidizing preferential programs.
According to Kovalchuk's report, from 2021 to 2023, around 600-650 billion rubles were doled out to sustain preferential programs. In 2024 alone, over 1 trillion rubles were allocated for mortgage lending. This year, the subsidies are predicted to rise by another 25-35 billion rubles.
The Accounts Chamber's audit strategy for 2025 includes an expert-analytical event to scrutinize the effects of key rate fluctuations on inflation and their interconnections.
Don't forget to check out our website for Elvira Nabiullina's take on the key rate and the liberation of assets belonging to Russian investors.
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- I'm not sure if maintaining the key rate at 21% will help in unlocking finance for business and reducing inflation, as the Russian economy currently exhibits high inflationary pressures and low production capacity.
- The various financial implications of the Bank of Russia's key rate, including its impact on the service of public debt and the state's obligations for subsidizing preferential programs, are aspects that the Accounts Chamber plans to scrutinize.
- Despite the recent hikes in the key rate, inflation remains high, making it challenging for Russian homebuyers to secure mortgage financing, with around 1 trillion rubles allocated for mortgage lending in 2024 alone.
- As the Bank of Russia's board prepares to discuss the key rate on April 25th, 2025, the Russian economy faces uncertainties regarding the ability to maintain growth and bring inflation down to target figures.
