Monetary Policy Report

Key rate reduced

Inflation forecast for the end of 2020

The prospect of further key rate reduction is held open at the upcoming meetings

When making this decision, the Bank of Russia took into account a number of factors:

Inflation slowdown
is still overshooting the forecast

Inflation and BoR key rate, YoY

In January, annual inflation declined to 2.4%. The inflation slowdown itself was expected and was primarily related to the factoring out of the VAT rate hike from the calculation last year. However, inflation showed a more considerable decline than we had expected. That said, inflation expectations generally remained unchanged.

According to estimates, annual inflation will reach about 2% in the first quarter. In the middle of the year, it will begin to rise, gradually returning to the target. In 2020, prices will rise by 3.5–4%.

Monetary conditions
have been easing

OFZ yields and the Bank of Russia key rate, %

Yields on federal government bonds stay at their lows for the last few years.

Interest rates in the deposit and credit market continue to go down. The average interest rate on mortgage loans hit a new low (9%). There is room for further decrease in interest rates.

Non-price conditions have been changing in diverse manner. The requirements for borrowers in the segment of consumer lending have become stricter, which is associated with the macroprudential measures implemented by the Bank of Russia in order to maintain financial stability.

The economy will grow
by 1.5–2% in 2020

GDP growth, YoY

This year, economic growth will speed up to 1.5–2%. This will also drive inflation back to the 4% target. The Bank of Russia expects that the growth rate of households’ consumption will remain at the current level, while investment growth will notably accelerate. Regarding external demand, the forecast implies that exports will recover after the last year’s decline. However, their dynamics will be contained by moderate global economic growth rates.

Disinflationary risks still prevail

Disinflationary risks significantly prevail over the short-term horizon. These include

  • domestic demand trends (both in terms of consumption and investment), and
  • a more considerable and longer-term impact of the ruble appreciation in 2019 than was assumed in our baseline forecast.

In addition, there is a range of factors related to both disinflationary and proinflationary risks. These are the situation in food markets, which is very volatile, and external conditions.

External conditions remain
an area of uncertainty

The significant risks associated with concerns about further aggravation of trade tensions between the USA and China have not materialised. However, the situation remains uncertain.

New challenges have emerged. The coronavirus problem is affecting the economic situation in both individual countries and the world in general. Its influence on the Russian economy is currently estimated as minor.


If the situation develops in line with the baseline forecast, the Bank of Russia holds open the prospect of further key rate reduction at its upcoming meetings

In its key rate decision-making, the Bank of Russia will take into account actual and expected inflation dynamics relative to the target and economic developments over the forecast horizon, as well as risks posed by domestic and external conditions and the reaction of financial markets