Dear colleagues and friends, good afternoon. Thank you for being with us today. We are about to start the press conference by the Governor of the Bank of Russia, Elvira Nabiullina, and the Deputy Governor, Alexei Zabotkin. To start with, we will hear the statement by the Governor following the Board of Directors meeting.
Good afternoon. Today we have made the decision to keep the key rate at 21% per annum. Inflation notably accelerated at the end of the year. According to our estimates, this was the result of considerable overheating in demand that could even have become stronger in the second half of last year. At the same time, factors that will be slowing down inflation have been gaining momentum. In the first place, this is a continuing cooldown in the lending market, coupled with a rise in household savings. Thus, we are now more certain that monetary conditions have already become restrictive enough for inflation to start decelerating in the next few months. Therefore, we have decided to continue the pause in the key rate increases. If the early monetary policy tightening turns out to be insufficient, we will be ready to reconsider the issue of raising the key rate at the next meeting. I will now dwell on the reasons behind our decision. Firstly, as regards inflation, price pressures remain significant. The underlying inflation indicators exceeded 10% by the end of 2024, which is certainly an intolerably high level in our view. In addition, the price dynamics in December were also affected by the early weakening of the ruble. In particular, the growth of prices for products highly dependent on the exchange rate, primarily electronics and household appliances, sped up. The underlying component of inflation was largely fueled by inflation expectations, which are still very high among all groups of economic agents. Analysts who participate in our market economic survey have raised their inflation expectations for 2025. At the same time, according to recent data, businesses have substantially lowered their price expectations for the first time since Q1 2024, which is an optimistic sign. High-frequency data on inflation in January and February suggests that current price growth has slightly decelerated compared to the end of 2024, however it would be premature to talk about a reversal in the trend. As to the revision of the inflation forecast for 2025, I would like to note that this year has started from a very high level, with very high price growth rates. Due to considerable inertia, it will take time to slow down inflation, and prices will rise by 7 to 8% by the end of this year. Nevertheless, price growth is expected to slow down every quarter, and by the end of 2025, month-on-month inflation will be consistent with the rate of 4% in annualized terms. Our inflation forecast relies on the baseline scenario that assumes a gradual return of the economy to a balanced growth path. I will now speak of the economic situation. The recent statistics for Q4 2024 show that GDP growth has sped up. According to our estimates, the economy's upward deviation from a balanced growth path has not decreased alongside inflation. Another major indicator of overheating is the labor market. Although staff shortages are still acute, businesses continue to signal that the situation has started to return to normal. Our regional branches report a high number of companies that have been decreasing the demand for labor. This means a more active reallocation of employees from some industries to the ones that are still experiencing considerable staff shortages. Overall, companies are reducing their recruitment targets and no longer plan to raise wages as fast as last year. Combined with the measures taken by businesses to enhance their efficiency, this will help make the growth rate of wages more in line with the rise of labor productivity. The updated forecast takes into account that domestic demand expanded more significantly by the beginning of 2025 than previously expected. Accordingly, GDP growth will be slightly higher this year, specifically 1 to 2%. Meanwhile, we have reduced our GDP growth forecast for the next year in an equivalent way. Overall, our view of the medium-term path of the economy remains unchanged. We expect that as the effects of monetary tightening and fiscal policy normalization build up, overheating will be gradually decreasing. Accumulated economic growth over the next three years will be in line with our October forecast. Now, as regards monetary conditions, since our December meeting, interest rates in the financial market have edged down, whereas non-price bank lending conditions have become more restrictive. Generally, the dynamics of loans and deposits suggest that monetary conditions are tightening further. Lending is already cooling down in all market segments. Furthermore, households have increased their saving activity. The reduction in market rates is associated with two factors. The first is that market participants have revised their expectations of the rate path downwards. As a result, yield curves in the money and debt markets have notably shifted lower since the end of December. Secondly, we have fine-tuned some regulatory measures. This has partially eased the excessive tightening of monetary conditions that was related to the regulation. Nonetheless, interest rates are still rather high. Affected by restrictive monetary conditions, lending has been slowing down since December. Over the past two months, banks' corporate and retail portfolios have both contracted. The decline in lending activity is one of the first stages of the transmission of our decisions to the economy, while the inflation rate is the final one. It will take time for the current slowdown in lending to fully translate into prices. It is worth taking into account that the deceleration in corporate lending is associated not only with our policy. Another important factor is budget expenditures. Normally, budget payments peak in December. This year, budget expenditures were high in January as well, exceeding their seasonal norm. This was explained by earlier prepayments under state contracts. Having received budgetary funds, companies were actively repaying bank loans. Hence, the data about the decline in lending is, so to say, noisy. According to our estimate, if adjusted for the budget payments, the slowdown in lending is more moderate. We consider that the combined effect of the budget and lending will result in more moderate dynamics of money supply. As is evident from recent data, money supply is growing more slowly than at the end of last year, and we will continue to closely monitor changes in budget expenditures, comparing them, among other things, with the pace of the cooldown in the lending market. We have revised the lending growth forecast for this year downwards to 6-11%. Lending growth will be slowing down due to both tight monetary conditions and the planned normalization of regulatory requirements. More moderate growth rates in lending are necessary to ensure disinflation in the economy. Briefly about external conditions: the world economy has continued to expand at a moderate pace. According to our updated forecast, the dynamics of the key items of the balance of payments have remained nearly the same compared to October. It is worth noting that beginning from our February meeting, we switch from publishing a forecast for Brent oil prices to Russian oil price used for tax purposes. This price better reflects how the situation in the oil market affects the key indicators of the Russian economy. I will now dwell on the risks to the baseline forecast. The balance of risks is still shifted towards pro-inflationary ones. As regards the factors that might cause a deviation from our baseline scenario towards a high inflation rate, I would note risks related to the external environment. The threats of new trade wars and fragmentation of global markets entail risks to business activity worldwide and might lead to a decline in the demand for Russian exports. As a result, we might face a decrease in both the price and quantities of exports. Moreover, there are still risks associated with inflation expectations in the labor market. The key disinflationary risk is a more substantial deceleration in lending. Our baseline scenario assumes a gradual and controllable decrease in lending activity. Nevertheless, the risk of a sharper slowdown does exist. This is why we will be tracking credit dynamics very closely. Changes in fiscal policy parameters, including the scope of subsidized lending programs, might influence our decisions. The baseline scenario implies the return to the fiscal rule in 2025, which will have a disinflationary effect. Furthermore, when making our decisions, we will also take into account geopolitical factors. They remain a source of high uncertainty. Winding up, I would like to comment on monetary policy outlook. We have concluded that the pause in key rate increase is the most balanced decision in the current conditions. At our next meetings, we will need to make sure that the existing trends are leading to a steady decrease in inflation. If it turns out that monetary conditions are not sufficiently restrictive for a sustained slowdown in lending and inflation, we do not rule out the possibility of a further key rate increase. Whatever the case, monetary conditions should remain tight for a longer period. Therefore, we have raised the forecast path of the key rate for 2025-2026. Thank you for your attention.
Now, dear colleagues, over to the Q&A. Don't forget to introduce yourselves and identify your agency. Rita in the first row, please.
Thanks very much. RIA Novosti agency. Have you decided the possibility of reducing the rate and the possibility of raising it over a certain period of time into the future?
Now we haven't debated the decrease of the rate. We considered two options: either to keep it as it was or to raise it. The time frame for the decrease, I think you paid attention to our outlook for the key rate and the interval that we have mentioned, which implies both the possibility of reducing the rate as well as, we don't rule out that it will be raised further. It would all depend upon the way the trends sustain themselves.
In the third row, please.
Interfax agency. To what extent do you believe the currently observed slowdown in lending is already sustainable? You have taken this particular indicator out of your consideration because you are sure of it, or as you said, you still consider that there might be a risk that the slowdown in lending is more significant than what is necessary to the target? To what extent is this particular risk realistic? And a little bit of a follow-up, because honestly I thought that Rita would raise this question, but what kind of optionality did you review during a board meeting of sending us signals?
As I have already put it, the December-January data, particularly in corporate lending area, if we talk about it specifically, this data is too noisy. Considering the retail lending, since the middle of the year we have been seeing a very stable slowdown. That's where we can talk about a sustainable trend. As far as the corporate lending is concerned, we require more information to make sure that this is a sustainable slowdown, because currently in this quite material slowdown in corporate lending there is a bit of a seasonal factor. This year, fiscal payments exceeded the seasonal usual level and that's why they were higher in general. So we need to have more time in order to make sure that this is indeed a sustainable trend. So we will definitely further monitor its dynamics. As far as possible signals have been concerned, yes, we have considered a moderate kind of a signal, which we have ultimately come up with, as well as the neutral one. I mean, the neutral one was proposed by the colleagues who believed that the tightness in the monetary conditions, as well as the lending dynamics currently viewed, as well as other indicators, the tightness in the monetary conditions was enough in order for the inflation to go stably down to 4%.
Well, maybe I should emphasize such a thing that in terms of its impact upon demand, lending serves as a very important source for the demand dynamics, but nevertheless the ultimate result in terms of the monetary impact comes from the money aggregates. So to separate lending from all of it is not very correct, because the overall monetary aggregate dynamics is what matters. And so in this sense, we do acknowledge the slowdown, but hopefully we will be seeing more and more stable trends setting in.
Dear colleagues, more questions. Odita, please.
Marita Movin, RBK. Recently, the situation where the regulation settlement of the Ukrainian conflict has been part of the debate, which in many ways has come out as a bit of a support for the exchange rate in the Russian stock market. In any scenarios, including the Central Bank scenarios, do you account for this factor and how do you believe it might impact overall economic processes and what you believe will be its impact upon inflation and the key rate? Thank you.
We don't account for this particular effect in our baseline scenario because we believe it is premature to include particularly such a thing into the baseline option. It would all depend upon the way the situation may evolve, because to precisely estimate how it might influence our economy and inflation is hardly possible.
Next question comes online from Victor Karov, Arguments and Facts newspaper, from the city of Kaluga.
We see that despite a very high key rate, inflation continues to grow. Due to that, some believe that the key rate growth led us all to a reverse result, I mean the inflation growing because of greater spending on the part of households and businesses to service their lending. Is that true?
Well, the real inflation is indeed a bit higher than we would like it to be, but if we were not to raise the key rates, which is something that I mentioned more than once, inflation would have been much higher and it would have been accelerating even further on top of it. But the idea that the growth of the key rate is propelling inflation further is deeply erroneous. The high key rate indeed pushes businesses and households to spend more to service their credit burden, but at the same time it deters the excessive demand that exceeds the possibility of goods and products manufacturing. As far as inflation is concerned, the effect from this excessive demand deterrence is much stronger. That is why a higher key rate unequivocally leads to price slowdown. So whenever somebody says that the high key rate leads to growing inflation, and people are always arguing, the businesses' expenditures grow, but the interest expenses that the businesses incur is part of the manufacturers' costs. The average one shows that it is not very big. Based on our estimates, over the past five years, the cost on supporting their lending wouldn't exceed 5% of costs. Many companies don't have any debts and they are able to develop their businesses using their own capital. The main share of costs are non-interest ones, and they grow along with the overall price growth in the economy. Whenever you buy inputs, raw materials, the inflation of costs is just the reverse side of the demand inflation and the result of competition between companies for resources which are in shortage, specifically the labor. So when raising a key rate, the Central Bank curbs the businesses' spending in terms of their capital side. Consequently, whenever demand is too high, companies may very easily pass all of the growing costs into prices. So by raising the key rate, we cool the demand down. Essentially, we bring the businesses to make up their mind whether to continue passing their costs over to the consumers. But in this case, if the demand is curbed, then such businesses will lose the market share, which is something they don't want. So that is an imperative for them to reduce costs, to improve labor productivity, which is something definitely necessary for this country's economy. Thank you.
Colleagues, Elena, the last one. Elena Fish, Reuters.
During the past few days, we've been witnessing the ruble rally. So do you believe that the appreciation of the ruble is already impacting inflation, and if it continues and becomes more sustainable, will that lead to an earlier reduction of the key rate?
Well, the strengthening of the ruble also took place in December, and this is definitely a disinflationary factor which is translated to the prices with a bit of a time lag. So considering the goods which in their prices are dependent upon the exchange rate, we do know the reduction of the price growth, particularly that applies to smartphones and household electronics. But that particular effect is also spread out in time. As I said, the appreciation of the ruble, if it becomes sustainable, is a disinflationary factor, and we will definitely take it into account amongst the plethora of other factors, because the strengthening of the ruble in itself is not the only factor which may bring about the reduction of the key rate to an earlier point in time.
Sergey Bolotov, the Russian Gazette. In this summary about the key rate, it has been stated that the Board of Directors debated it, and so in a situation when it may grow or may go down, is there a short list of the most important indicators which with a very high level of probability would allow one to forecast the key rate growing down or growing up, like the lending rate, the exchange rate, or the fiscal spending? And so these five points are enough to understand whether to predict whether the key rate will go down or will go up?
Well, thank you very much. The question about the indicators in the basic assumptions which impact our decision every now and then arise. We publish it frequently in order to share this, because in terms of there being a closed list of indicators, alas, it's not existing. We're trying to analyze everything that might impact the economy and inflation. That is a broad set of parameters which describe the external and internal economic environment, including down in the regions, which constitutes an important part of the work we do. I believe that out of what you've enumerated, definitely we look at the fiscal, not really fiscal spending, but the deficit, because that is something that first impacts the demand dynamics. Inflation expectations, definitely household inflation expectations, we always keep it in our sight. Now, there aren't any the most important indicators for all time. In different situations, different indicators acquire greater weight. As a rule, we're very cognizant of the kind of indicators whose dynamics demonstrate the biggest deviation from the average historic or the stable trend, or the ones which most notably changed since the last board meeting, because they may contain more information about the way the situation evolves and how the inflationary situation changes. You may recall that almost one year ago in March, when there were such questions, we issued triggers, I will describe them that way, rather the issues that we are monitoring to make up our mind whether to decrease or increase the rate. That was about the current inflation, inflation expectations, consumer activity, lending, labor market, its condition is very, very important, as well as the external risks and the fiscal situation. So as of that point in time since March last year, I would say various risks and factors have come to be which led us to the need to raise the key rate. As I said, at different times different factors are at a bigger place. So right now we are watching over the current inflationary pressure, the labor market, what is going on there, because the state of the labor market is also one of the indicators of whether the economy is overheating or not. Business sentiments, because we want to understand the extent to which a very strong overheating in demand side remains in the economy. Another area which we find extremely important is the assessment of the tightness of the monetary conditions. You know, to be able to see whether the current measure of tightness is enough for the inflation to stably go down to the target. To put it in a nutshell, we are looking at the current picture overwhelmingly. Different indicators come to the forefront at different times, trying to reflect this in the summary in order for you to understand, in order for the public to understand what was the most important consideration in our decision-making. Thank you very much.
Market publication. Now, for the further growing of the key rate, will the narrowing of the spread in terms of the banks offering funding or the results in lending offer in January and February enable one not to compensate for this?
Well, thank you very much. Indeed, the spreads have narrowed because we have adjusted our decision-making in the banking regulation, first and foremost in terms of the short-term liquidity standards. We have adjusted the schedule for the banks according to which they are supposed to achieve the adequacy levels of their own capital and expanded the possibility to be granted irrevocable credit lines, which led to the spreads becoming narrower. But at the same time, we don't believe that the narrowing spread led to the overall softening of the monetary conditions which require compensation. On the contrary, we believe that the monetary conditions, if you analyze it by the price-based ones and non-price based ones, not only in terms of the deposit component but also in terms of the price conditions in lending, we believe that they haven't softened, they have become tighter. Thank you.
Next question comes from the city of Novosibirsk from Lolita Bov, Kommersant Siberia newspaper.
The growth of the key rate will make the credit resources more expensive. Do you expect a greater number of insolvencies in the businesses to happen?
No, we don't expect any wave of insolvencies to inundate us. Yes, of course, there are very strongly over-leveraged companies. In their case, the growing cost of servicing their debt constitutes an important consideration which considerably eats away their profits. But for the majority of the companies, the financial status primarily depends upon the growing costs. Yes, the situation may become worse if the basic costs may continue to grow, related to the wages, inputs, resources, greater tariffs, more expensive logistics and supply chain, including because of the sanctions. So the growth of such costs is the direct result of an overheating demand, and the high inflation is an indicator of that. So in our mind, not less for the households, businesses are also tending to gain more from inflation coming back to the normal life, for which purpose we need a higher key rate. So generally speaking, the businesses, irrespective of the overall cost growth as well as the interest rates growth, are able to maintain their financial stability, which is something that we are quite mindful of, amongst other things, through the extent to which the number of applications is being received by different banks for debt restructuring. In the small and medium-sized business segments, we do see it still taking place, which is important, but the overall volume of restructuring, the number of refinancing cases, doesn't exceed the level of 2023. And the quality of the banking lending is also one of the indicators. The share of the so-called distressed loans, bad loans, corporate bad loans, is less than 3 to 4%, 3.7%, which is not a big value. So this is something that we're monitoring continuously, and so we don't expect any big problems here. Yeah, thank you.
I've got a question about inflation. As of February 10th, inflation in Russia according to the Central Bank was 10%. What do you think, when will this inflation peak be reached, following which it will, if not to say slow down, at least stay at a plateau level, and when ultimately we will go back to one-digit inflation at least?
Well, that's true, inflation is currently unacceptably high. As far as our inflation forecast is concerned, we have reconsidered it upward for this year. There are several components to it. There is an annual inflation, the one that measures inflation over the past 12 months. Effectively, you compare inflation in February this year with February of the previous year, and so this annual inflation depends upon what the last year's base is going to look like. We expect we would be able to make a judgment over it sometime in April-May. So as far as the current inflation is concerned, the price growth rate month on month which is clean from the seasonal impact, then we feel that it will soon start to slow down. There may be a slight increase in it because of the tariff indexation to take place in July, but the most important thing is that we expect that towards the end of the year, this monthly inflation which characterizes the current price pressure, towards the end of the year it will reach 4% annualized. But simply because we entered this year with a high inflation, then towards the end of the year the annual inflation will be about 7 to 8%. Thank you.
Now then, yes, it's your turn.
Maria Bitan. Recently now you said that it is premature in the meantime to take into account the peaceful settlement and its probability. But at what point in time should there be certain agreements reached so that the Bank of Russia would seriously account for them in their monetary policy?
Well, you know, I would rather not speculate on this topic at all. Let's leave it and see, because I believe it's going to become obvious to everyone when one could take into account our baseline scenario. Like I've said, it is based upon the notion of unchanged geopolitical environment going forward.
Nikita Movin, Economical Telegram channel.
I've got a question about a horror story. I read the regulatory information in the federal law where I was able to see that the Central Bank has the mandate to freeze the deposits in the commercial banks. People are talking about it, and you don't see any arguments about it. So I would like to really raise the question whether the Central Bank indeed has such a mandate. I'm not talking about individual cases when banking licenses are being revoked, but if you do have it, then what kind of criteria is the Central Bank going to apply in order to use this mandate?
No, the Bank of Russia doesn't have such an authority written in the law. This is the kind of authority that one absolutely doesn't need, that really wouldn't make any sense. Thank you.
The next question comes online from Yia P, Bloomberg.
Since the beginning of January, 60% of the sanctioned oil tankers are standing still. Does the Central Bank consider the risk that the export revenue may strongly go down over the next few months? Will there be any problems in the hard currency supply in the market?
Well, we don't see any problems in the meantime with the supply of hard currency. We are tracking the export revenues of hard currency by the exporting entities. But as far as the probability of the export revenues shrinking, there could be different factors. It could come from the world economic development, trade fragmentation, trade wars, which may result in the global economy pace going down, ultimately affecting the demand in our case. So we consider it as part of the risk scenario which we put together every year and presented, and in it we take into account, amongst other things, the risks of export revenues contracting.
Colleagues, Ivan in the second row, please.
Ivan Sing for Mag Ru. I've got a question here about the lending slowdown because there are several factors which are counterproductive to each other. I mean to say that if big business doesn't get the necessary loan, it goes into placing bonds. Another factor is that the smaller borrowers, when they don't get normal kind of lending, they go into microfinance. Another factor is that the debtors, when they struggle to deal with their credit burden recently, they started delaying their payments, and the money intended to pay off their debts they use in order to put them into certain liquidity funds and after that pay off their debts. Now, to what extent these factors which are counterproductive to what the Central Bank is doing have any material significance or they don't?
Well, without doubt we do observe and watch out for the three factors that you've enumerated, not only them. Yes, we do have the bond market growth. We believe this is quite a positive happening. But nevertheless, despite such a growth we see in the bond market, its volumes raised are materially smaller. Usually, people taking a look at how much bonds have been placed, you need to take a look at net placement with the deduction of the maturity payments, and over the years there's a bit of seasonality and certain spikes that you could see. So we don't see a strong overflow. But if companies would go more for the bonds in the market and less borrow from the banks, that is still lending by the banks in a different way, but that is a very normal thing because we always have been saying that we want the stock market and the bond markets to develop. And as far as a possible overflowing towards the microfinance institutions, if you talk about the household borrowers, we don't see such a strong trend. It's just that these markets are simply incomparable in terms of their scales, just fractions of a percentage in terms of how much individuals borrow from microfinance compared to the amount of lending they take from a bank. This kind of an overflow will definitely be impeded by other means, our macroprudential regulation which is quite equalized between the banks and the microfinance institutions. As far as postponing the payment for loans, we do also monitor payment discipline. In the meantime, we haven't noticed any big problem here. Thank you.
