The Board of Directors of the Bank of Russia decided on September 13, 2024, to raise the key rate by 100 basis points to 19.00% per annum. Current inflationary pressures remain high. Yearly inflation by the end of 2024 is likely to exceed the July forecast range of 6.5–7.0%. Growth in domestic demand continues to significantly outpace the capacity to expand the supply of goods and services. Further tightening of monetary policy is required to resume the process of disinflation, reduce inflation expectations, and ensure that inflation returns to the target in 2025. The Bank of Russia does not rule out the possibility of raising the key rate at the next meeting. According to the Bank of Russia’s forecast, considering the monetary policy being implemented, annual inflation will decline to 4.0–4.5% in 2025 and will remain near 4% thereafter.
In August, the current price growth adjusted for seasonality was 7.6% year-on-year. A similar figure for core inflation was at 7.7% year-on-year. These figures are lower than the average levels of the second quarter of 2024, but exceed the average values of the first quarter of 2024. Yearly inflation, estimated as of September 9, was 9.0% after 9.1% at the end of August. Persistent inflationary pressure overall remains high and currently shows no signs of decreasing.
Inflation expectations among the population and businesses continue to rise. Short-term inflation expectations of professional analysts have increased. At the same time, long-term inflation expectations derived from financial market instruments have decreased following the July key rate decision. Overall, inflation expectations among economic agents remain at elevated levels. This reinforces the inertia of persistent inflation.
Data on GDP for the second quarter of 2024 and operational indicators in July and August indicate that the growth of the Russian economy has somewhat slowed down. This slowdown is likely primarily not related to a cooling of domestic demand, but to an increase in supply-side constraints and a decrease in external demand. This is evidenced by high current inflationary pressure. The deviation of the Russian economy upwards from the trajectory of balanced growth remains significant.
Consumer activity, despite some slowdown, remains high. It is primarily supported by rising incomes. Significant investment demand is upheld by both budget incentives and the companies’ own funds accumulated over the past few years. Although survey data suggest a slight deterioration in current business sentiment, companies’ expectations for future demand remain high.
The labor market remains tight. Unemployment has again reached a historical low. There is a significant labor resource deficit, especially in the manufacturing industries. Although wage growth has slowed in recent months, it remains high and continues to outpace labor productivity growth.
Monetary conditions have tightened in response to both the July increase in the key rate and the significant upward revision of its forecast trajectory in the baseline scenario. This revision has affected money market rates, as well as short- and medium-term yields on government bonds (OFZ). At the same time, long-term OFZ yields have decreased due to a reduction in inflation expectations among financial market participants. Credit and deposit rates continue to rise.
High market rates support savings sentiment, but are still insufficient to restrain lending. Overall growth in lending remains high, despite a slowdown in the retail segment. Mortgage lending has slowed due to the cancellation of targeted subsidized mortgages from July 1 and the rise in market rates. The slowdown in consumer lending reflects both the effects of the monetary policy being pursued and previously adopted macroprudential measures. At the same time, the growth rates of corporate lending remain elevated due to significant contributions from operations that are less sensitive to market rates. The decision made by the Bank of Russia will accelerate the formation of monetary conditions necessary for the growth of savings activity and a return to balanced growth in lending.
On a medium-term horizon, the balance of risks for inflation has significantly shifted towards inflationary pressures. Inflationary risks have increased due to the deterioration of external trade conditions. There are also risks associated with persistently high inflation expectations and the upward deviation of the Russian economy from the trajectory of balanced growth. Disinflationary risks are primarily linked to a faster-than-expected slowdown in domestic demand growth compared to the baseline scenario.
The Bank of Russia assumes the announced trajectory of budget policy normalization for 2024 and subsequent years will remain unchanged. Changes in budgetary policy may require clarification of the parameters of the monetary policy being implemented.
On September 25, 2024, the Bank of Russia will publish a Summary of the discussion regarding the key rate.
The next meeting of the Bank of Russia’s Board of Directors, which will consider the level of the key rate, is scheduled for October 25, 2024. The time for the press release regarding the decision of the Bank of Russia’s Board of Directors and the medium-term forecast is set for 1:30 PM Moscow time.
Statement by the Chairwoman of the Bank of Russia Elvira Nabiullina following the meeting of the Bank of Russia’s Board of Directors on September 13, 2024.
When using this material, a reference to the Press Service of the Bank of Russia is mandatory.