Central Bank of Russia holds rates at historic high in March

Decision meets market expectations: At its meeting on 21 March, the Central Bank of Russia (CBR) decided to maintain its policy rate at an all-time high of 21.00%. This decision marked the third consecutive hold and had been penciled in by market analysts. The decision followed a cumulative 1,350 basis points worth of increases since the CBR started tightening its stance in July 2023.

Bank commits to tight policy stance in the near term: The CBR determined that rates would need to remain elevated for a “long period” to guide inflation down toward its 4.0% target by 2026. In particular, the Bank highlighted that domestic demand continues to outstrip supply capacity, and both headline and core inflation remained significantly above target at the outset of 2025. In addition, the Bank assessed the risks to the inflation outlook to be tilted to the upside. That said, the CBR noted that lending activity remains muted and households’ propensity to save is high amid tighter credit conditions. Moreover, policymakers pointed to declining inflation expectations and signs that labor shortages are easing, factors that likely dissuaded further policy tightening.

Rate cut bets pile up: In its communiqué, the CBR indicated that it will “consider” tightening monetary policy at its next meeting on 25 April; still, Governor Elvira Nabiullina’s subsequent statement was less hawkish than in February, stating that the probability of a hike had decreased. As a result, none of our panelists have penciled in additional rate increases, and most expect the Bank to kick off a monetary policy easing cycle in Q2–Q3. Overall in 2025, our Consensus is for around 425 basis points of cuts, although the spread is wide, ranging from 100 to 700 basis points.

Panelist insight: EIU analysts commented: “We expect the CBR to embark on easing towards the end of the second quarter, with real rates nonetheless expected to remain firmly positive. There is significant potential for rates to be held higher for longer given continued fiscal stimulus from military spending in the 2025 budget, which is also likely to exacerbate tight labour markets and act as an upside risk to inflation. […] Although we expect monetary loosening to continue throughout the remainder of the forecast period, there remains the potential for large and sudden movements rather than a continuous ratcheting down.” Goldman Sachs’ Clemens Grafe was more hawkish: “We have inflation declining more slowly despite our slightly lower growth forecast compared to the midpoint of the Bank. We think the Bank will keep the key rate on hold until Q4-2025 and that rates will decline only slowly in line with the guidance, and the 19-22% guidance of the average key rate in 2025 from the Bank.”

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