Russia: Bank of Russia keeps rates at record high in February
Hold priced in by markets: At its meeting on 14 February, the Central Bank of Russia (CBR) decided to maintain its key policy rate at an all-time high of 21.00%. This decision marked the second consecutive hold and had been penciled in by most market analysts. The hold followed a cumulative 1,350 basis points worth of increases since the CBR started tightening its stance in July 2023.
Central Bank maintains wait-and-see approach: The Bank determined that interest rates were high enough to drive inflation towards its 4.0% target in 2026. The CBR noted that credit conditions have tightened since its last meeting in December—tempering lending activity—and businesses’ price expectations edged down in late 2024. Moreover, the Bank pointed to signs that labor shortages might be easing, though the labor market remains tight. Nonetheless, several factors prevented the CBR from lowering interest rates. The Bank hiked both its end-2025 inflation and average interest rate forecasts. Additionally, core inflation expectations climbed through January; household inflation expectations remained near end-2024’s highs; and the CBR noted that domestic demand continues to outstrip supply capacity.
Dovish shift on the horizon: In its communiqué, the CBR maintained a hawkish tone, indicating that it will “assess the need for a key rate increase” at its next meeting on 21 March; in a subsequent statement, Governor Elvira Nabiullina ruled out a cut and said that the Bank will need to retain a tight monetary policy stance for a long period to sustainably drive inflation toward its 4.0% target. All but one of our panelists see the CBR holding fire at its next meeting. That said, our panel sees inflation averaging below the Bank’s 9.1–9.8% forecast range over this year as a whole; as a result, our Consensus is for around 450 basis points of cuts in 2025, although the spread is large at 100–800 basis points.
Panelist insight: Goldman Sachs’ Clemens Grafe commented on the impact of a ceasefire on the outlook:
“Should a ceasefire be reached, we think inflation would fall significantly faster, as defence spending would likely fall sharply and labour supply would be boosted by returns from the front and from abroad. Hence, in that scenario, we think the CBR would be able to cut rates faster.”