MOSCOW: The Bank of Russia has kept the key rate at 21% per annum for the fourth time in a row and announced a long period of tight monetary...
MOSCOW: The Bank of Russia has kept the key rate at 21% per annum for the fourth time in a row and announced a long period of tight monetary policy, according to a press release from the regulator.
"On 25 April 2025, the Bank of Russia Board of Directors decided to keep the key rate at 21.00% per annum. Current inflationary pressures, including underlying ones, continue to decline, although remaining high," the regulator says.
The Bank of Russia also raised the lower limit of the average key rate forecast for 2025 and lowered the upper limit. From April 28 until the end of this year, the regulator expects the average key rate to be in the range of 18.8-21.8%. The lower limit of the average key rate forecast for 2025 has been increased from 19% to 19.5% and the upper limit has been lowered from 22% to 21.5%, for 2026 the forecast remains the same - 13-14%. For 2027, the Bank of Russia also retained the average key rate forecast at 7.5-8.5%.
"The Bank of Russia will maintain monetary conditions as tight as necessary to return inflation to the target in 2026," the regulator noted.
"The Bank of Russia takes into account the announced parameters of fiscal policy. Its normalization in 2025 will have a disinflationary effect. Changes in the fiscal policy parameters may require an adjustment in the monetary policy pursued," the regulator said.
Macroeconomic forecast
The upward deviation of the Russian economy from a balanced growth path is still significant.
But in the first quarter of 2025 the growth in economic activity slowed down.
"High domestic demand is backed up by rising household incomes and budget expenditures. However, high-frequency data and surveys of businesses indicate that growth in economic activity slowed in 2025 Q1 compared to 2024 Q4," the regulator said.
Further decisions on the key rate will be made depending on the speed and sustainability of the decline in inflation and inflation expectations, the Bank of Russia said. According to the baseline scenario, the average key rate is expected to be in the range of 19.5-21.5% per annum in 2025 and 13.0-14.0% per annum in 2026. According to the Bank of Russia’s forecast, given the monetary policy stance, annual inflation will decline to 7.0-8.0% in 2025, return to 4.0% in 2026 and stay at the target further on.
As of April 21, annual inflation was 10.3%. In the first quarter of 2025, seasonally adjusted price growth averaged 8.3% in annualized terms, after 12.9% in the fourth quarter of 2024. Core inflation averaged 8.9%, up from 13.4% in the previous quarter. The labor market remains tight. Unemployment is at its record lows.
"However, according to surveys, the share of enterprises experiencing labor shortages is gradually declining in many regions. In addition, labor demand in certain industries has been decreasing with a reallocation of employees across industries. Wage increases remain high and continue to outpace labor productivity growth. Nevertheless, according to surveys, companies are planning more moderate wage indexation in 2025 compared to 2023-2024," the regulator noted.
The Bank of Russia lowered its forecast for the price of Russian oil for tax purposes in 2025 to $60 from $65 per barrel, and for 2026 the forecast was kept at $60 per barrel. The forecast for 2027 was also kept at $60 per barrel. The Bank of Russia maintained all its forecasts regarding the February meeting on the growth rate of lending to individuals and companies on the horizon of 2025-2027. In particular, in 2025, the regulator still expects the growth rate of lending to individuals and companies at the level of 1-6% and 8-13%, respectively, and mortgage lending at 3-8%. In 2026, the regulator forecasts the growth rate of lending to legal entities at the level of 7-12%, to individuals - 5-10%, and in 2027 - 8-13%. The regulator estimates the growth rate of mortgage lending in 2026 at 6-11%, in 2027 - 10-15%.
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