Russia's main bank maintains its crucial interest rate at the historical high.
The Bank of Russia Stands Pat on Interest Rates
Once again, the Bank of Russia has opted to keep its key interest rate at a staggering 21% per year, according to a statement from its press service following the April 25 meeting of its Board of Directors.
Despite indications of gradually decreasing inflationary pressure, the central bank's concerns persist over the ongoing economic strains. As reported by the regulator, domestic demand keeps outrunning the capacity to supply goods and services, though it seems the economy is gradually finding a balanced growth trajectory.
Inflation, currently surpassing 10%, has been fueled by wartime expenditures, labor shortages, and demands outpacing the supply capabilities [1][3]. However, the Bank of Russia is hopeful that inflationary pressures will continue to ease, albeit at a gradual pace.
It's the fourth consecutive occasion that the bank has decided against altering the key rate since it reached a record high in October 2024.
The Bank of Russia anticipates an annual inflation rate of 7-8% for 2025 and 4% in the following year [1][4]. To achieve its 4% inflation target by 2026, the bank plans to maintain restrictive monetary conditions [1][2].
In 2024, the bank increased the key rate on three occasions: by 200 basis points in July, by 100 basis points in September, and by another 200 basis points in October.
To curb inflation, the bank will employ a multifaceted strategy, including:
- Continuation of Monetary Tightening: The bank is committed to maintaining tight monetary conditions "as tight as necessary" to meet its 4% inflation goal by 2026 [1][2].
- Normalization of Fiscal Policy: The bank believes that 2025 fiscal adjustments will have a disinflationary effect, potentially reducing dependence on monetary measures [2].
- Adjustments to Forecasts: Inflation is projected to drop to 7–8% in 2025 [1][4], with the average key rate expected to remain between 19.5% and 21.5% this year, before declining to 13–14% in 2026 [2].
- Flexibility: The bank warned that deviations in fiscal policy might necessitate adjustments in monetary policy, emphasizing a data-driven approach [2][3].
The ultimate objective is to restore equilibrium between demand and supply while navigating external risks, such as global economic downturns and oil price volatility [4].
Svetlov, the statement from the Bank of Russia's press service reveals that the key interest rate will be maintained at 21% despite gradual decreases in inflationary pressure. The bank anticipates an annual inflation rate of 7-8% for 2025 and 4% in the following year to achieve its 4% inflation target by 2026. To meet this goal, the bank plans to maintain restrictive monetary conditions, employing a strategy that includes continuation of monetary tightening, normalization of fiscal policy, adjustments to forecasts, and flexibility. The bank warns that deviations in fiscal policy might necessitate adjustments in monetary policy, emphasizing a data-driven approach.
