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MIL OSI Translation. Region: Russian Federation –

Source: Central Bank of Russia – Central Bank of Russia (2) –

The participants of the discussion in the course of preparation for the decision on the key rate on February 16, 2024 heard the reports of the Monetary Policy Department and the Research and Forecasting Department. The departments presented their proposals on the basic macroeconomic forecast for 2024-2026 and its variations, taking into account the latest data and emerging trends. The main departments of the Bank of Russia presented reports on the situation in the regions. Additionally, the participants of the discussion considered the information of the Financial Stability Department and the Department for the Organization of International Settlements.

The material reflects the key points of discussion in preparing the decision.

Section Contents

Economic situation and inflation

Key Facts

GDP growth in 2023 was 3.6%. The GDP level was significantly higher than forecast, including due to the revision of data for 2021 and 2022. The main contribution to GDP growth was made by domestic demand (investment, changes in inventories and household consumption). According to current data, economic activity remained high at the beginning of the year, but growth slowed down somewhat. Although unemployment is at a historic low (2.8% seasonally adjusted (s.a.w.) in December), tensions in the labor market have stopped growing. Annual inflation in 2023 was 7.4%. In December 2023 – January 2024, current price increases have slowed compared to peak values in the autumn months. Price expectations of enterprises and inflation expectations of the population decreased, but remained at elevated levels.


Participants in the discussion noted that if during the December meeting there were questions regarding the degree and speed of adjustment of the economy and inflation to increases in the key rate, in recent months it has become obvious that the action of the transmission mechanism of monetary policy has accelerated through all channels. In particular, rates on the credit and deposit markets increased, imports and the ruble exchange rate adjusted, inflation expectations of all economic agents decreased, the rate of expansion of loan portfolios decreased, and savings actively grew.

Inflationary pressure is gradually weakening, which is a consequence of tightening monetary policy. However, while all participants agreed with this conclusion, they had different judgments regarding the intensity of disinflation given the continued high inflation risks and general uncertainty. On the one hand, price growth slowed down significantly: 6.5% with seasonal adjustment in annual terms (a.y.) on average in December – January versus 11.3% a.y. on average in July – November 2023. The slowdown in price growth occurred for a wide range of goods and services. As a result, estimates of sustainable inflation, including core inflation, have noticeably decreased (7.0% s.y. on average in December – January versus 9.8% s.y. on average in July – November 2023) . On the other hand, it has been suggested that the slowdown in inflation is largely due to one-time factors. For example, in December – January, the rate of price growth in certain food markets decreased due to an improvement in the supply situation. In addition, although the weight of rapidly rising categories of the consumer basket in the overall index began to decline during these months, the pace of this decline was less than the rate of its growth in the second half of 2023. This could be a sign of continued inertia in the persistent part of inflation.

Participants noted that overall inflation pressures remained roughly the same in January as in December. The only exception was the services sector, where price growth (excluding housing and utility services) accelerated significantly (11.5% y-o-y versus 5.4% y-o-y in December). This acceleration is mainly due to the rise in prices of health resort services. Participants in the discussion suggested that the seasonality in the dynamics of prices for domestic tourism services could change due to the fact that Russians have reoriented from foreign trips to trips within the country. Participants agreed that the dynamics of prices for paid services in general is an important indicator of changes in demand (including under the influence of monetary policy). It is still difficult to give an unambiguous assessment of whether such dynamics of prices for paid services are determined by stable or one-time factors.

During the discussion, the risks were discussed that, in the current circumstances, inflation could remain at elevated levels for a long time. Since the pandemic, inflation has been elevated most of the time due to both demand and supply side factors. Inflation expectations of the population and price expectations of enterprises, although they have decreased from peak values, remain high and unanchored. As a result, a return of inflation to 4% could have significant inertia and require a prolonged period of tight monetary conditions.

The discussion participants noted that in 2023 the level of GDP in the Russian economy was significantly higher than October estimates. Firstly, Rosstat increased its indicators on the dynamics of economic activity in 2021–2022. Secondly, a significant contribution to GDP growth in 2023 was made by an increase in investments (GFCF) and reserves (MOS). Participants agreed that the 2023 MOC increase should not be interpreted unambiguously as an overhang of consumer and/or capital goods inventories, the use of which in 2024 could slow down GDP growth. However, this component deserves additional attention when analyzing GDP statistics through 2024.

Based on enterprise monitoring data and qualitative observations of economic trends in the regions, the discussion participants agreed that at the end of 2023, the production of goods and services in general continued to expand. However, trends in individual industries varied. Thus, the reduction in agriculture was associated with a shift in harvesting to earlier dates in the past year, and in railway transportation – with a decrease in the volume of exports of coal and petroleum products. Road transportation, on the contrary, grew at an accelerated pace. According to the Volga-Vyatka Main Directorate, automakers managed to resolve bottlenecks in the procurement of auto components, which previously held back the production of passenger cars. Car production also increased at the previously idle capacities of car factories in Central Russia and the North-West. Overall, manufacturing output continued to increase. The business climate indicator, according to February estimates, indicates a further expansion of business activity.

The sustainability of inflation pressures depends on economic conditions, on where the economy is relative to its potential, so participants discussed in detail the nature of strong GDP growth in 2023. Such growth could be associated both with a large increase in the potential of the economy (for example, due to increased labor efficiency, the introduction of new capacities, the use of new technologies), and with a larger positive output gap (a situation in which the economy grows faster than its objective capabilities and supply does not keep up according to demand). In past discussions, participants tended to agree that the majority of observed economic growth is explained by the positive output gap. It arose due to increased domestic demand, fueled, among other things, by accelerated credit expansion and high government spending. The positive gap was signaled by the accelerated growth of inflation, high capacity utilization, and overheating in the labor market. During the February discussion, it was suggested that the contribution of the increased potential could be higher than the Bank of Russia had previously estimated. Arguments in favor of this may include a decrease in inflationary pressure in recent months and the lack of increasing tension in the labor market. The publication of updated quarterly data on GDP dynamics for 2021–2023 in April will provide important additional information for assessing economic dynamics and retrospective analysis.

Based on operational data and assessments of enterprise monitoring, the discussion participants noted the continued high investment activity. The investment activity indicator for the fourth quarter of 2023 reached a new historical maximum. The expectations of the companies participating in the monitoring assume that investments will remain at a high level in the first quarter of 2024. Participants in the discussion indicated that there are several important factors that will keep companies’ investment activity high even in the face of increased rates. Firstly, the maximum utilization of production capacity. Some companies reach their production limits on existing equipment. This motivates them to expand their production capabilities. Secondly, the rising cost of labor resources and their increasingly limited availability. In this regard, projects to automate production processes and increase their efficiency are becoming increasingly in demand. Thirdly, high profits in a number of industries allow enterprises to finance investment projects even when the cost of loans increases. Thus, the balanced financial results of enterprises for rolling 12 months, both in general and for most industries, remain close to historical highs or update them.

The labor market remained one of the key topics of discussion. Participants discussed whether the labor market had passed its peak of tension. On the one hand, the trends remain generally the same: the unemployment rate is at a historical low, hiring expectations are at a historical high, employment is growing, and enterprises are reporting a record low level of employee availability. The main departments spoke about the continuing shortage of personnel in their regions. In some industries it continued to grow (retail, construction, services, pharmaceuticals). On the other hand, participants noted that in a number of industries, tensions in the labor market had ceased to increase, in particular in the manufacturing industry, mining, metallurgy, mechanical engineering, and chemistry. Participants in the discussion pointed to several possible reasons for the halt in the growth of tensions in the labor market. First of all, the flow of labor could have an impact both between industries and between regions of the country. The main departments noted that companies in some regions, where the situation with available labor is worse, temporarily attract workers from other regions on a rotational basis. To attract employees, companies are expanding the social package, subsidizing rent and purchasing housing. This increases the attractiveness of jobs, but increases costs for businesses and may have a pro-inflationary effect. At the same time, in the face of labor shortages, companies invested in reducing the labor intensity of production processes. Participants agreed that it will be possible to be convinced of the sustainability of current trends in the labor market only with the passage of time.

One of the key indicators of the effectiveness of monetary policy is the intensity of growth in consumer demand. Participants agreed that consumer demand remains strong and has just begun to respond to tightening monetary conditions. The main departments reported a slowdown in the growth of consumer activity in certain regions; in the South of Russia and the Far East there was a decrease from peak values. Opinions are divided regarding the sustainability of the slowdown in consumer demand. Some participants pointed to the reduction in imports of consumer goods as an indicator of the ongoing and future cooling of consumer demand. Other participants in the discussion believed that there were no signs of a sustained slowdown in consumer demand growth yet, and in the context of high inflation expectations, growth could accelerate again. They also pointed out that, according to enterprise monitoring data, companies’ demand expectations remain at historical highs.

Participants noted that the execution of budget system expenditures in January was close to the historical norm. Most participants agreed that planned budget expenditures over the medium term and tax policy are of primary importance for aggregate demand. Both of these are already influencing the production plans of companies and the expected incomes of the population, as well as related lending activity. The schedule of actual transfers of budget funds within the year is of secondary importance for changes in demand in the economy compared to planned government expenditures and concluded contracts. For monetary policy, the key factor is the determination of the parameters of the medium-term budget, which occurs as part of the budget process. At the same time, some participants expressed the opinion that if actual transfers of budget funds within the year in certain periods deviate significantly from normal seasonality (while maintaining budgetary parameters for the year as a whole), then this may still have some impact on the current rise in prices and credit activity. At the same time, many participants noted that decisions in the field of fiscal policy remain a significant factor in assessing the required degree of monetary policy tightness.

Monetary conditions

Key Facts

The OFZ yield curve has become more inverted since the December decision on the key rate. Rates on the short end remained high, while on the long end they decreased by 0.5 percentage points. Deposit and loan rates have increased. In the corporate lending market and in the consumer segment of the retail market, loan portfolio growth began to slow down in December–January. Mortgage lending continued to grow rapidly in December, mainly due to preferential government programs, and in January there were signs of a slowdown in its growth. High rates of inflow of funds to household deposits continue. In the fourth quarter, the savings rate increased significantly.


The participants of the discussion noted that monetary conditions have tightened since the December meeting on the key rate. The inversion of the OFZ curve has noticeably intensified. Real yields on OFZ-INs have risen to above 5% per annum. Along with other price and non-price indicators, this indicates the formation of tight monetary conditions. Rates in the deposit market increased, mainly in the segment from 1 to 9 months. Credit rates were also rising. The panelists agreed that the adjustment of credit rates to the tightening of monetary policy will continue. In addition, interest rates for borrowers will further increase due to factors autonomous from monetary policy. First, the banking sector will move from structural surplus to structural liquidity deficit. This means that banks will attract funds from the Bank of Russia more than they will place them on deposits. As a result, the spread of short-term money market rates to the key rate will become positive from negative, which will mean additional tightness of monetary policy at the same level of the key rate. Second, the abolition of most of the regulatory relaxations for banks, primarily on the fulfillment of NCL, leads to a certain increase in the liquidity premium in credit rates. Additionally, macroprudential policy measures will continue to influence the degree of tightness of bank lending conditions.

The reaction of the credit market to the tightening of monetary policy was discussed in detail. The participants noted that the credit market is cooling in almost all segments (except for car loans, where demand is recovering after a deep decline). The growth of retail credit is slowing down. Unsecured consumer lending and market mortgages react more quickly to changes in interest rates. These segments of the credit market are experiencing a pronounced slowdown in growth. In addition to interest rates, the growth of unsecured consumer lending and market mortgages is constrained by macroprudential measures aimed at limiting risks. The impact of these measures on lending was taken into account when making decisions on monetary policy. In December, there was a decline in the issuance of mortgage loans only in the secondary housing segment. In the primary market, high growth was maintained, as the bulk of issuance was within the framework of preferential programs. In January, mortgage originations generally declined (both in secondary housing and in the primary market) due to seasonality, high market rates, as well as the tightening of preferential mortgage parameters. Participants noted that the slowdown in mortgage portfolio growth will continue as a result of both rising interest rates and tightening macroprudential measures (their impact will be amplified by the entry into force of additional measures in March 2024).

Discussion participants noted that corporate lending is less sensitive to changes in interest rates. The growth of this portfolio is also slowing down, but less pronounced. Participants gave several reasons. Firstly, a significant share of corporate loans is issued at floating rates, and it is growing. Companies may be more willing to attract such loans in anticipation of lower rates. Second, corporate lending may be slower to respond to rising rates on projects that are already underway, since the costs of stopping such projects often exceed the effects of higher borrowing costs. Thirdly, the high financial results of companies allow them to attract and service loans at higher rates. Fourth, according to surveys, companies remain positive about business prospects. They expect continued high demand for their products, including from the government. Finally, in December, companies could attract additional lending in anticipation of the planned investment of budget funds in early 2024.

During the discussion, it was noted that the risks to financial stability associated with high interest rates are negligible. Banks do not note and do not expect an increase in applications for loan restructuring in the near future due to the deterioration of the financial situation of borrowers. An assessment of the financial position of real sector companies confirms that there is currently no risk of a systemic increase in requests for loan restructuring.

The discussion participants agreed that the impact of tight monetary policy on lending activity will continue to grow. Lending growth will slow down during 2024. Bringing inflation back to target and closing the positive output gap in the economy requires a significant slowdown in credit growth compared to 2023. At the same time, large-scale preferential programs continue to have a distorting effect on the credit market, which can be compensated by a more pronounced cooling of credit activity in the market segment.

Participants noted that the population’s savings sentiments are increasing. This occurs under the influence of several factors. An increase in the key rate leads to a tightening of monetary conditions, which ensures high rates of inflow of funds on deposits in banks and a slowdown in the growth of retail lending. At the same time, high income growth rates allow citizens to save more. Participants agreed that rising savings sentiment is limiting the growth of consumer demand. However, a significant slowdown in consumption has not yet occurred. In the future, there is potential for strengthening the savings motive: with declining inflation expectations, even a constant level of interest rates will become increasingly attractive.

External conditions

Key Facts

In the fourth quarter of 2023, GDP growth in the United States exceeded expectations. The eurozone avoided recession. China’s GDP growth rate remained strong despite challenges in the real estate sector. Current data for January indicates an improvement in global economic performance compared to the fourth quarter of 2023. Against the background of stabilizing inflation, central banks of developed countries may begin to lower rates by the middle of the year.

Exports from Russia in the fourth quarter of 2023 turned out to be noticeably lower than the October forecast of the Bank of Russia. Prices for most Russian export goods and physical export volumes decreased. The nominal exchange rate of the ruble to the currencies of trading partner countries remained virtually unchanged.


The discussion participants’ views on global GDP dynamics for 2024 remained largely unchanged from the previous meeting. In the US, growth is expected to be slightly higher than previously expected. Revisions to previous years’ data indicate a higher trajectory for potential US GDP. In the eurozone, economic growth rates will be lower: falling exports and rising energy costs will continue to have an impact. The economies of Russia’s trading partners will continue to grow at high rates, which will support demand for Russian exports. The growth rate of China’s economy will decrease slightly, but will remain high.

Participants in the discussion agreed that due to the rapid decline in inflation, central banks in developed countries may ease monetary policy more quickly than previously thought. At the same time, to begin easing monetary policy, they need additional evidence of the sustainability of the return of inflation to target levels. A faster easing of external monetary policy could contribute to disinflationary trends in Russia by widening the differential between domestic and external interest rates, although this transmission channel has been weaker since 2022.

The discussion participants left the forecast trajectory for the price of Brent crude oil unchanged compared to the October baseline scenario. Additional support for oil prices will continue to be provided by OPEC decisions to limit production. At the same time, participants noted that the risks of a faster decline in oil prices remain due to a further increase in production outside OPEC. A decline in oil prices could increase pro-inflationary pressure in the Russian economy.

During the meetings, the reasons for the reduction in Russian exports for a wide range of goods were discussed in detail. Participants noted that the observed growth in global GDP is largely due to the services sector. This sector is less material intensive. As a result, global growth is now generally providing less support to prices for Russian exports. Regarding the prospects for export dynamics, two main scenarios were considered. First: the reduction is temporary, caused by adjustment to changing conditions and the increasing complexity of payments and logistics. Over time, exports will recover in line with global growth and its composition. Scenario two: Exports decline in response to structurally changed conditions, and recovery will be limited in the near term. According to the second point of view, part of the volume of export products will be redirected to the domestic market, which can act as a disinflationary factor. In part, these processes are already observed, for example, in the Urals, where previously production was largely export-oriented. The reorientation of companies from exporting their products to domestic consumers is one of the characteristic manifestations of the ongoing structural transformation of the economy. In addition, participants noted that the structure of Russian exports is changing. For example, agricultural exports occupy an increasingly large share in it.

The situation on the foreign exchange market remained stable. Operations within the framework of the fiscal rule further limited the sensitivity of the ruble exchange rate to fluctuations in oil prices. The discussion participants noted that the dynamics of oil prices still affects the foreign exchange earnings of Russian companies with a lag. Sales of foreign currency on the market have declined over the past period following a decline in the value of exports. At the same time, the share of foreign currency earnings sold remained consistently high. Additional support for the ruble in November-December 2023 was provided by operations related to the payment of dividends by Russian companies. At the same time, importers slightly reduced demand for foreign products, which may partly be due to expectations of a decline in consumer demand due to tight monetary conditions. Thus, tight monetary policy continues to contribute to cooling demand for imports in ruble terms, which contributes to more stable dynamics of the ruble exchange rate. High ruble interest rates also support demand for ruble financial instruments as a store of value.

According to participants, changes in the physical volumes of exports, as well as the prices of non-oil and gas exports, the negative impact of which cannot be compensated by the fiscal rule mechanism, remain a significant source of risk for the exchange rate. Participants paid attention to the consequences of additional difficulties in external payments. It was noted that if difficulties affect both exports and imports, then there may not be a pronounced impact on the exchange rate. The discussion participants also confirmed their opinion that if the decree on the mandatory sale of foreign currency earnings by the largest exporters is not extended, this will not become a significant factor in the subsequent dynamics of the exchange rate.

Inflation risks

The discussion participants stated that at the current stage the balance of risks remains biased towards pro-inflationary ones. Among the pro-inflationary risks, participants identified the following:

High and unanchored inflation expectations, sensitive to temporary episodes of rising prices for individual goods or services. This can create spillover effects to inflation. Deterioration of foreign trade conditions under the influence of both the geopolitical situation and deteriorating conditions on commodity markets. The situation on the labor market. Risks are associated with labor productivity lagging behind the growth of real wages. Maintaining significant volumes of lending within the framework of government preferential programs, which will “make noise” in the operation of the transmission mechanism of monetary policy. Extending the time frame for normalizing budget policy. This risk has not increased, but remains significant for inflation dynamics.

Disinflationary risks, according to the discussion participants, are weakly expressed and are mainly associated with a faster slowdown in domestic demand under the influence of the already implemented tightening of monetary policy. In addition, if economic growth is largely due to the expansion of potential rather than the cyclical component (gap), then less inflationary pressure may develop in the economy.

Implications for monetary policy and key rate decision

The discussion participants reviewed the updated forecast calculations. In addition to the basic scenario, a set of variations to it was considered, including those reflecting inflation risks. These are, in particular, variations in the short-term inflation trajectory, the ruble exchange rate, estimates of the size and rate of reduction of the positive output gap (including at different levels of potential).

Taking into account the data received from the December decision on the key rate and updated forecast calculations, the discussion participants considered two solution options:

Maintaining the key rate at 16.00% per annum. Increase in the key rate by 100 basis points, to 17.00% per annum.

The main arguments for maintaining the key rate at 16.00% per annum were the following:

The effects of tightening monetary policy continue to grow. This is manifested in both a slowdown in lending growth and an increase in savings activity. In the future, the effects of the earlier increase in the key rate will continue to manifest themselves in the dynamics of economic indicators and contain inflationary pressure.
A noticeable decline in the current rate of price growth in December-January, including sustainable indicators, indicates that the Bank of Russia’s monetary policy has probably already reached a sufficient degree of tightness. But it is too early to judge the sustainability of disinflation. Consolidating the disinflation process requires maintaining the achieved tightness of monetary conditions for a long time.
The positive output gap in the economy remains significant, but appears to have peaked in the middle of the fourth quarter of 2023. Taking into account current data on the dynamics of inflation and domestic demand, the gap began to gradually close. In addition, higher GDP growth in 2023, while easing inflationary pressures, may indicate a higher level of potential for the Russian economy. Increasing intersectoral and geographic mobility of the labor force, increasing its coverage and increasing labor productivity can slightly increase the flexibility of the labor market. However, these effects require further evaluation.
In 2024, additional rigidity of monetary conditions will be facilitated by several factors independent of monetary policy: the abolition of most regulatory relief for banks (including on the implementation of national tax regulations), macroprudential regulation measures, as well as the transition of the banking sector from a structural surplus to a structural deficit liquidity.

The main arguments in favor of increasing the key rate to 17% per annum were the following:

By early February, there was no comprehensive evidence of a sustained decline in inflation. At the current stage, greater monetary policy tightness may be needed to reduce inflation at the desired rate, that is, to return it to the target in 2024. Failure to achieve the inflation target could negatively impact inflation expectations. They may become entrenched at elevated levels, making disinflation more difficult in the future. There is a risk of underestimating the economy’s output gap or the speed at which it closes. In particular, the slowdown in consumer activity may not be sustainable. Inertia in lending dynamics may persist due to the distorting influence of preferential programs and increased inflation expectations of borrowers. Since the December meeting, there has been a noticeable deterioration in the terms of foreign trade, including a decline in prices on commodity markets, an expansion of the discount for Russian oil, additional difficulties with payments, and a decline in exports.

Having compared the arguments of the two solutions, the discussion participants agreed that the decision to maintain the key rate at 16.00% per annum is more justified.

First, the Bank of Russia’s baseline medium-term forecast indicates that keeping the rate unchanged at the February meeting is consistent with the goal of returning inflation to target in 2024 and stabilizing it around 4% thereafter. Secondly, additional tightening of monetary policy could create risks of a significant deviation of inflation downward from the target in 2025. The associated increase in output fluctuations will not meet the goal of sustainable stabilization of inflation on target. Thirdly, the arguments in favor of raising the key rate to 17.00% per annum primarily reflect pro-inflationary risks for the base scenario. And taking them into account is more relevant to the discussion of the future trajectory of the key rate.

Considerable time was spent exchanging views on the possible future trajectory of the key rate.

Participants agreed with an increase in the forecast for the average key rate for 2024–2025. This reflects the fact that the Russian economy entered 2024 with a higher positive output gap, that is, a higher pro-inflationary background than expected in October. An upward shift in the forecast trajectory of the key rate will create additional conditions for consolidation of disinflationary trends in the economy.
Participants emphasized that maintaining a signal of the need for continued tight monetary conditions in the economy is an important factor in ensuring the desired direction of monetary policy. At the same time, all participants agreed that it is important to avoid interpreting this signal as a direct indication of the unchanged key rate itself for a long time. With a sustained decline in inflation and inflation expectations, the same degree of tightness of monetary conditions (that is, the same level of real interest rates) will correspond to a gradually decreasing key rate. Most participants expected that in the base scenario, conditions for the start of a key rate reduction would develop in the second half of 2024. Some participants did not rule out the possibility that the decline would begin a little earlier.
Additionally, it was noted that at the current stage, special care is required when making decisions when choosing the path of the key rate. The experience of past years shows that the transition of the population from a saving model of behavior to a consumer one, with strong changes in the level of the key rate, occurred relatively sharply. In this regard, the reduction in the key rate should be smooth.

Based on the results of the discussion, the Board of Directors of the Bank of Russia on February 16, 2024 decided to set the rate at 16.00% per annum from February 19, 2024.

The decision on the key rate was accompanied by an indication of a long period of maintaining tight monetary conditions in the economy. The Board of Directors of the Bank of Russia came to the conclusion that in the baseline scenario, taking into account the already achieved rigidity of monetary conditions and an increase in the forecast for the average key rate, sufficient conditions will be created for inflation to return to the target in 2024 and stabilize around 4% in the future. The Russian economy, taking into account the current monetary policy, will return to the trajectory of balanced growth by 2026. More details about the medium-term forecast can be found inComments on the medium-term forecast of the Bank of Russia.

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Please note; This information is raw content directly from the information source. It is accurate to what the source is stating and does not reflect the position of MIL-OSI or its clients.

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