Monetary Policy Guidelines
for 2025–2027

The goal of monetary policy is to maintain inflation close to 4%. Effective on a permanent basis, the inflation target is set for the annual growth rate of consumer prices, that is, the change in prices for goods and services purchased by households over the past 12 months. The consumer price growth rate is determined based on the consumer price index (CPI) calculated and published by the Russian Federal State Statistics Service (Rosstat).

Since the end of 2014, the Bank of Russia has been pursuing the floating exchange rate regime. This means that foreign exchange rates against the ruble are determined by market forces. The Bank of Russia sets no targets or limits for the exchange rate or the pace of its movements.

A floating exchange rate helps the economy better adjust to changes in external conditions than under a fixed or managed exchange rate regime. It also enables the regulator to pursue its monetary policy independently of other countries. A floating exchange rate has a stabilising effect on the economy, which is especially important during periods of structural economic transformations.

In order to mitigate financial stability risks amid the blocking of the Bank of Russia’s foreign currency accounts and the foreign sanctions, the capital controls in Russia were tightened beginning from 2022. As financial stability risks weakened, these capital controls were eased. The controls that are still in place offset the effect of the external sanctions aimed at incentivising foreign investors to withdraw capital from Russia and prohibiting potential future capital inflows.

Despite the effective capital controls, the exchange rate of the ruble remains floating. In the new environment, its movements to a greater extent than before depend on the ratio of importers’ demand for foreign currency and its supply by exporters. The effect of capital flows on the dynamics of the exchange rate stays less significant than before.

In the conditions of a floating exchange rate, the Bank of Russia can conduct operations in the FX market to maintain financial stability.

The main instrument of the Bank of Russia’s monetary policy is the key rate used to form such monetary conditions in the economy that help keep inflation close to the target. The key rate impacts market interest rates which influence households’ and businesses’ propensity to consume, save, and invest. This factor determines domestic demand, while the ratio between it and supply affects price dynamics.

The Bank of Russia makes its decisions on the key rate relying on sustainable economic trends. If inflation deviates from the target, monetary policy can ensure its return to the target during a period from 12 to 18 months, provided that there are no new severe shocks. However, it might take more time to bring inflation back to the target in the case of events considerably altering the economic environment. Implementing its monetary policy, the Bank of Russia chooses such a path for returning inflation to the target that would also minimise the deviation of output from its potential.

Any key rate decision is accompanied by an explanation of its logic, as well as by a signal regarding possible further monetary policy decisions. The Bank of Russia releases its medium-term forecast, including the projected path of the average key rate, four times a year. These are the key elements of the Bank of Russia’s communication on its monetary policy. Communication of its future intentions is an important instrument for managing inflation expectations and their anchoring to the inflation target.

Monetary policy decisions impact price dynamics not instantaneously, but with a time lag. Therefore, making its monetary policy decisions, the Bank of Russia relies on a medium-term macroeconomic forecast, while also assessing the risks of a deviation of inflation from the forecast level.

Normally, the Bank of Russia focuses slightly more on the factors that might cause an upward deviation of inflation from the forecast. This is associated with the specifics of inflation expectations in Russia. Professional market participants’ inflation expectations are generally anchored to the target, whereas households’ and businesses’ inflation expectations remain sensitive to price fluctuations. Unanchored inflation expectations might be a reason for a persistent deviation of inflation from the target. Such a situation requires a monetary policy response. This effect might be especially strong during a period of significant changes in the economy and elevated uncertainty.

Decisions on monetary policy are always made when there is no complete certainty. Hence, the Bank of Russia places a high emphasis on the rationale behind its decisions. To this end, the Bank of Russia uses a broad variety of model-based techniques and a range of macroeconomic forecast scenarios.

The Bank of Russia seeks to promptly and amply communicate the information on the goals, principles, measures and results of its monetary policy, as well as on the assessment of the economic situation and its prospects.

Efficient communication enhances confidence in the monetary policy pursued. A better understanding of the Bank of Russia’s decisions by society helps decrease inflation expectations and achieve the inflation target more efficiently. The Bank of Russia is continuously working to improve the outreach of its monetary policy and make the communication more targeted, including at the regional level.

Setting the format of the inflation target, including its level, type, time horizon and price index, is a fundamental issue within the inflation targeting regime. The efficiency of this regime depends on how consistent the central bank is in pursuing the inflation target established.

Switching to inflation targeting in 2015, the Bank of Russia set the goal of its monetary policy to lower inflation to 4% in the medium term and keep it close to this level further on. The studies carried out as part of the Monetary Policy Review prove that the level of 4% chosen by the Bank of Russia at the initial stage of inflation targeting was reasonable. By the end of 2021, the Russian economy had formed prerequisites for reducing the inflation target in the future. This was proven, in particular, by model-based calculations, including the analysis of the factors for setting the inflation target around the globe.

At the current stage, the Bank of Russia has made the decision to maintain the inflation target at the level of close to 4%. After inflation slows down and stabilises close to 4%, the Bank of Russia will assess the reasonableness of decreasing the inflation target. However, such a reduction will only be possible no earlier than 2028.

In November 2014, the Bank of Russia switched to the floating exchange rate which is an integral element of inflation targeting. A floating exchange rate has a number of benefits making monetary policy more efficient. In the first place, it acts as a ‘built-in stabiliser’ of the economy, that is, if external conditions change, a floating exchange rate helps reduce the extent of overheating or downturn in economic activity. Secondly, this regime enables the Bank of Russia to pursue its monetary policy independently of other countries’ policies and the external economic environment. Finally, a floating exchange rate regime makes it possible to balance the interests of different economic agents thus helping diversify the economy and enhancing its resilience, which is crucial during periods of structural economic transformations.

The Bank of Russia’s model-based approaches rely on a wide range of models, including those for short- (one to two quarters) and medium-term (three to four years) forecasting. The Bank of Russia is continuously enhancing its model-based approaches considering latest research and developments by Russian and foreign experts in macroeconomics and quantitative methods, as well as foreign central banks’ best practices.

The quarterly projection model (QPM) is one of the main models used by the Bank of Russia to analyse the domestic economy. The model was developed back in 2007 and has been adjusted on a regular basis since then. In 2023, the Bank of Russia introduced two key changes into the model. First, the breakdown into food and non-food goods and services (excluding housing and utility services) was replaced with core inflation and non-core components. Second, the model was expanded to include the block of the labour market covering wage and unemployment variables. Besides, the model was complemented with a multi-level production function as a deeper analysis of the interrelations between labour market indicators requires structural modelling of production factors and supply-side factors.

The Monetary Policy Department provides forecast estimates from the QPM to the Bank of Russia executives before the key rate meetings. The Research and Forecasting Department prepares alternative estimates based on its own models relying on a version of the standard QPM with the additional fiscal and credit blocks. The Bank of Russia executives also review forecast estimates provided by the Bank of Russia Main Branches that are based on region-level structural and semi-structural models. All the Bank of Russia Main Branches completed the development of their models in 2024. 

The Bank of Russia’s monetary policy and inflation target are common for Russia in general. However, even when kept at the target, inflation in individual regions may be both slightly above or slightly below 4%. Regional inflation differs from the country’s average due to the heterogeneous composition of the consumer basket across regions and specifics in the dynamics of prices even for the same goods. Nevertheless, when inflation is steadily low in the country in general, regional inflation will be low and stable as well, with price growth rates varying only marginally across regions and product groups.

The Bank of Russia has been carrying out regular surveys of companies for over 25 years. Executives of nearly 15,000 enterprises in all Russian regions take part in these surveys. Based on the results of the monthly surveys, the Bank of Russia tracks the dynamics of business and investment activity both in the economy in general and across various industries. The Bank of Russia analyses business activity using the Business Climate Index (BCI) that comprises three measures: the composite index, the present situation index, and the expectations index. The dynamics of the composite BCI are normally in line with the dynamics of gross domestic product (GDP). However, during periods of turbulence and high uncertainty, its changes are one quarter ahead of GDP dynamics. Making its monetary policy decisions, the Bank of Russia especially focuses on the dynamics of companies’ price expectations as they are an important indicator demonstrating the general trend and intensity of current inflation processes.

The Bank of Russia paused fiscal rule-based operations in the FX market at the end of January 2022 due to heightened volatility in financial markets. After the enactment of the sanctions and the blocking of a part of Russia’s reserves in February—March 2022, the Government of the Russian Federation suspended the fiscal rule. From 2023, the Ministry of Finance resumed fiscal rule-based operations to accumulate additional oil and gas revenues in the National Wealth Fund (NWF) in favourable foreign trade conditions and use the NWF’s resources in the amount of the decline in oil and gas revenues when the trade environment is unfavourable. The Bank of Russia started to mirror these operations in the domestic FX market using the CNY/RUB currency pair. Furthermore, beginning from 2023 H2, the Bank of Russia has been regularly mirroring the operations to invest the NWF’s resources in permitted financial assets inside the country in rubles. In 2024, the Ministry of Finance of the Russian Federation returned to the regular version of the fiscal rule. Starting from 2024, the Bank of Russia has been mirroring one-time operations that use the NWF’s resources to cover the budget deficit beyond the framework of the fiscal rule.

Thus, in 2024, the Bank of Russia started to mirror all the operations accumulating and spending the NWF’s money in full amount. This has been smoothing the impact of global price volatility on the Russian economy and positively influencing the ruble exchange rate.

Fiscal policy is a key factor influencing the dynamics of aggregate demand, inflation and, accordingly, the macroeconomic forecast and monetary policy decisions. The Bank of Russia’s baseline scenario relies on the budget projections announced by Russia’s Ministry of Finance and its own macroeconomic assumptions.

The forecast presumes that the Government will progressively normalise fiscal policy and return to expenditure budgeting in accordance with the fiscal rule principles from 2025, with the structural primary deficit kept at a zero level in the future. If the Government changes the announced path of fiscal policy normalisation, the Bank of Russia might have to adjust the parameters of its monetary policy in order to bring inflation down to the target in 2025 and maintain it at 4% further on.

In the context of macroeconomic policy, the concept of a long-term equilibrium in the economy is widely applied worldwide. A long-term equilibrium does not imply any specific point, but rather a steady path of economic development. When the central bank implements its monetary policy under the inflation targeting regime in a long-run equilibrium, consumer prices rise at a pace consistent with the inflation target and economic growth rates are equal to potential and determined by the growth rate of production factors and the pace of technological advancement. Various internal and external cyclical shocks might cause a gap, that is, a short-term deviation of the economy from its equilibrium.

Economic publications refer to an output gap most frequently. This is a non-observable variable showing how much the actual output of goods and services has deviated from potential output. As the output gap is a non-observable variable, the central bank takes into account the uncertainty about the accuracy of its estimates when implementing its monetary policy.

The concept of an equilibrium and gaps is mostly applied to real indicators. However, in actual life, the economy comprises both real and financial indicators. It is also possible to estimate an equilibrium and a gap for financial indicators — the gap in the total credit-to-GDP ratio is used most frequently. The financial system might increase the economy’s deviation from an equilibrium and might even be an original source of such a deviation. Similarly to other central banks, the Bank of Russia takes into account the state of the financial sector when developing its macroprudential policy to a greater extent. Nevertheless, when preparing its monetary policy decisions, the Bank of Russia also considers the situation in the financial sector as an essential element of the analysis and an important indicator of the economy’s deviation from an equilibrium.

The liquidity coverage ratio (LCR) characterises how well systemically important credit institutions would sustain stress outflows of funds in the next 30 days. The LCR of 100% and higher means that banks have sufficient highly liquid assets to cover possible outflows of clients’ funds as quickly as possible. Highly liquid assets comprise banks’ demand and overnight funds with the Bank of Russia, cash in cash offices, and unencumbered high-quality and liquid securities. In early 2022, due to rising volatility in financial markets, a rapid outflow of clients’ funds and a shortening of maturities of their deposits, the LCR values in a number of banks worsened. In view of this, the Bank of Russia temporarily eased the requirements for the LCR. Later on when banks significantly enhanced their financial stability and profits, the Bank of Russia cancelled the easing.

The requirement to comply with the LCR makes highly liquid assets more attractive to banks thus influencing their pricing. As banks are the major OFZ market participants, the cancellation of the easing related to the LCR influences not only pricing in the money market but also monetary conditions in general. This measure was a one-time factor tightening monetary conditions. In 2024–2025, the Bank of Russia will continue to gradually increase the requirements for banks to comply with the minimum level of the LCR. Banks will therefore need to step up their efforts to transform the maturity structure of their balance sheets. If banks continue to ensure compliance with the LCR by extensively raising funds from the Bank of Russia, the effect of these operations on the money market will persist. As banks adapt to the changed regulation, the impact of the LCR on the cost of short-term liquidity will be weakening.

Implementing its monetary policy, the Bank of Russia takes into account the surge in credit to the economy under various subsidised programmes as this lending is weakly sensitive to key rate changes. The Bank of Russia believes that government subsidised lending programmes are an efficient economic policy instrument to address such tasks as countercyclical stimulation of recovery in demand during economic downturns and targeted aid to certain groups of borrowers or individual industries. However, when applied to a wide range of borrowers during a long time, this instrument becomes less powerful due to a stronger substitution effect, increasing burden on the budget, and weakening potential for growth in market-based lending to the economy at a pace compatible with price stability. Lending to the economy in general is affordable when, first and foremost, inflation is predictably low and, accordingly, investors’ inflation risks go down, enabling borrowers to raise loans on market terms without accumulating imbalances in the economy.

The transfer curve is a set of internal interest rates on operations of various maturities established by a commercial bank. The transfer curve is the core of the system of banking products pricing that enables banks to determine a coherent range of prices for operations in various market segments and, when needed, to flexibly adjust the structure of their balance sheets by choosing between various sources of funding and investment. There is no such thing as a uniform transfer curve for the entire banking sector. Each bank builds its individual curve based on the yield curves of market instruments with minimum risk or, where necessary, relying on its internal assessments.

When making its monetary policy decisions, the Bank of Russia analyses the economic situation not only in the country in general but also at the regional level. Regional heterogeneity in Russia is significant as economic structures and relations differ across regions. Accordingly, although the Bank of Russia’s monetary policy is common for all the regions, its influence on inflation, output, investment and unemployment may vary across the regions. Thus, the transmission of monetary policy decisions is faster in the regions that have a more diversified sectoral structure, high quality of life and low inequality, a mature banking sector and credit and deposit market, low credit risk, and accessible financial services.

The variety of cause and effect relationships, through which key rate changes influence demand and prices, is referred to as the monetary policy transmission mechanism, and individual chains of its cause and effect relationships are called transmission mechanism channels.

The basic element of the monetary policy transmission mechanism is the effect of the Bank of Russia’s key rate on interest rates and yields in the main segments of the Russian financial market. Money market rates, bond yields, and credit and deposit rates form under the influence of monetary policy and, in turn, impact almost any economic agents’ decisions affecting demand in the economy and inflation.

The extensive changes induced by the coronavirus pandemic and the geopolitical instability of 2022–2023 inevitably affected all economic processes, including the elements of the transmission mechanism. Its functioning has also been impacted by other economic changes, e.g., digitalisation and dedollarisation of the economy. The appendix describes both the common patterns of the transmission mechanism and the specific conditions of its functioning in recent years.

The inflation indicator that is stipulated in the Bank of Russia’s monetary policy goal is the annual growth of the Consumer Price Index (CPI) which is a convenient measure to analyse long-term price dynamics. To assess current price movements, the Bank of Russia normally uses the monthly price growth index. It has notable seasonal fluctuations, due to which this indicator is seasonally adjusted for the analysis. Underlying measures of inflation are most helpful to comprehend medium-term inflation trends. There are multiple approaches to assessing the underlying components. These approaches are usually divided into statistical and model-based ones. Statistical approaches rely on a certain calculation algorithm removing all distorting components from the data. Model-based approaches use an estimate of an equilibrium path of inflation within a certain model. Overall, none of the measures of underlying inflation can be considered to be the best one in any situation. In practice, each of them has its pros and cons. Accordingly, it is necessary to monitor a wide range of these measures.

In 2023, inflation deviated upwards from the target by 3.4 pp, which was mainly fuelled by a greater-than-expected increase in producer costs, including due to tougher sanctions. Another factor was growth in budget expenditures and the key rate level that was insufficient to slow down inflation. Although staff recruitment and labour costs were up, higher labour intensity offset their proinflationary effect. Domestic demand fully restored in early 2023, which reduced its proinflationary impact. However, the trend reversed in 2023 H2 and the economy became overheated. The capacities to ramp up supply were limited and could not cover surging demand. Consequently, in 2023 H2, domestic demand was exerting proinflationary pressure.

The quantitative analysis of reasons for the inflation deviation from 4% was supplemented with the decomposition of GDP dynamics into shocks. In 2023, GDP was up by 3.6%, primarily driven by domestic demand. Another contributor to the GDP growth was aggregate supply because of the significant increase in the economy’s potential. The expansion of the economy was also boosted by a substantial rise in budget expenditures and accommodative monetary policy pursued in 2022 H2—2023 H1. On the other hand, the GDP dynamics were negatively affected by foreign trade restrictions, lower external demand for Russian goods and services due to tight monetary policies worldwide, and staff shortages.

One-off inflation factors can arise due to both demand- and supply-side issues. Their influence can be transitory or more persistent, e.g., due to secondary effects. One-off factors with a temporary impact subside in a short term. Where inflation expectations are anchored, monetary policy measures taken in response to such factors might increase the volatility of output – this is why central banks normally do not respond to them. However, some one-off factors can have a more persistent effect. They might cause a surge in economic agents’ inflation expectations, as a result of which they might become anchored to the target less strongly and, accordingly, the effectiveness of the transmission mechanism might decrease. If such risks materialise, they might require a monetary policy response in order to mitigate negative consequences for inflation and economic growth.

Economic agents’ inflation expectations influence how efficiently monetary policy will be able to control inflation. The performance of the Bank of Russia’s monetary policy in turn impacts inflation expectations. Achieving the inflation target and maintaining inflation at a steadily low level help anchor inflation expectations and reduce their volatility and responsiveness to one-off and short-term spikes in prices for certain products or services.

Inflation expectations and observed inflation measured using household surveys almost always exceed actual inflation rates both in Russia and abroad. Nevertheless, these estimates are essential indicators showing possible changes in households’ economic behaviour. These changes influence future underlying inflation.

To analyse households’ and businesses’ inflation expectations, the Bank of Russia relies on the findings of InFOM’s household surveys commissioned by the Bank of Russia and the monitoring of businesses carried out by the Bank of Russia. Additional sources of data on economic agents’ inflation expectations include analysts’ inflation forecasts and estimates of breakeven inflation for inflation-indexed federal government bonds (OFZ-IN). Overall, households’ inflation expectations and companies’ price expectations remained elevated in 2023 H2 and in January–August 2024, and the Bank of Russia was taking that into account when making its monetary policy decisions.

Seeking to provide information in a timely and comprehensive manner, the Bank of Russia has been actively improving its communication since the transition to inflation targeting by expanding the target audience and communication channels. In 2024, the Bank of Russia introduced a number of important changes. In particular, the Bank of Russia started to release the Summary of the Key Rate Discussion (the Summary) covering the main aspects of the deliberations and the Commentary on the Medium-term Forecast (during the core rounds), launched a new service to access statistics, and increased the number of executives’ external communications on monetary policy issues. In terms of transparency of its communication with the professional community, the Bank of Russia is in the upper half of the central banks’ rating and even improved its position by launching the publication of the Summary.

The Bank of Russia has been also enhancing its communication with the general public, focusing on improving the comprehensibility of its materials, the coverage and targeting and on expanding collaboration for educational purposes and outreach in social media.

The Bank of Russia has raised the estimate of the longer-run real neutral interest rate for the Russian economy by 1.5 pp to 3.5–4.5% p.a. With the inflation target being close to 4% and inflation expectations anchored to the target, this range corresponds to the nominal neutral interest rate of 7.5–8.5% p.a. The increase in this estimate is in line with the comprehensive review of the changes in the economy over recent years ascribed to the structural expansion of the demand for investment, a higher risk premium, the easing of the fiscal rule parameters, and the increase in neutral interest rates globally.

The Bank of Russia continues the pilot testing of the digital ruble on real transactions. This is the digital form of the Russian ruble issued in addition to the cash and non-cash forms. In terms of its features, the digital ruble is similar to both cash and funds in bank accounts. Digital rubles, just as cash, are the Bank of Russia’s liabilities, but they will be issued in the digital form just as banks’ non-cash funds. The adoption of the digital ruble will provide a number of benefits. These are the development of new payment infrastructure, the option of accessing digital ruble wallets via any bank connected to the platform, and in the future — better financial inclusion in remote and hard-to-reach areas where internet connection is not always stable. The key advantage is that the digital form will help reduce the cost of settlements. The introduction of the digital ruble will not affect the fundamental principles of the functioning of the banking system and monetary policy implementation. In the future, the effectiveness of the transmission mechanism may improve owing to lower transactions costs and higher competition among banks.

Jointly with the Government of the Russian Federation, the Bank of Russia develops and implements financial market advancement policy. Its medium-term objectives are described in the Russian Financial Market Development Programme for 2024–2026 and have been generally attained as planned. The advancement of the Russian financial market is critical during the period of the structural transformation of the domestic economy as its financing requires long-term funds. Given the sanctions, these funds can only be received from domestic sources, including household savings. As the measures aimed at the development of the financial market are implemented, the Bank of Russia will evaluate their influence on the effectiveness of the transmission mechanism and monetary policy.

The Bank of Russia calculates the monetary programme indicators in addition to the banking sector liquidity forecast and includes them in the forecast figures taken into account in the course of the development and implementation of the Bank of Russia’s monetary policy.