Monetary Policy Report

Key rate raised by 100 bp

Inflation forecast
for 2022

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

Elevated inflationary pressure is becoming increasingly persistent

Inflation (% YoY) and the Bank of Russia key rate (% p.a.)

Inflation is evolving appreciably above the October forecast. Its persistent components have strengthened, and the effect of temporary factors has turned out to be more prolonged than expected. In January, annual inflation continued to grow.

The main reason for elevated inflationary pressure is growing imbalances in the economy. The increase in demand continues to exceed the capacity to expand supply. The expansion of output is constrained by rising labour shortages. Moreover, there are still temporary problems caused by disruptions in logistics and production chains.

All this shapes a more persistent character of inflation compared to October expectations and calls for a due monetary policy response. Given the monetary policy decisions, annual inflation will stand at 5.0–6.0% this year and will return to the target in the middle of 2023.

The economy demonstrates signs of overheating

GDP growth rate, % YoY

The economy has appreciably exceeded the balanced growth path. There is robust growth in consumer and business activity. In January – November 2021, the net profit of Russian companies was up 80% vs the outcomes of the same period in 2019 before the outbreak of the pandemic. Unemployment is at historic lows since October.

Amid current high inflation rates, this implies the existence of signs of overheating. Lending expansion, growing real wages and a still low propensity of households to save are all contributing to an increase in consumer activity.

According to the Bank of Russia’s forecast, GDP will rise by 2.0–3.0% in 2022. In 2023, the Russian economy will rise by 1.5–2.5% and in 2024 – by 2.0–3.0%. According to the forecast, this will help return the economy to the balanced growth path by the end of 2023.

Monetary conditions have changed from accommodative to neutral ones

OFZ yields, the Bank of Russia key rate and deposit rate, % p.a.

* The maximum interest rate on deposits in Russian rubles of the top 10 credit institutions attracting the largest amount of household deposits.

Monetary conditions are adjusting to the actual decisions slower than expected. Lending growth has stopped accelerating, but it is still not enough to produce a noticeable impact on inflation.

The key rate growth have a slightly more marked influence on deposit movements compared to loans. Staring from mid–2021, households’ propensity to save has slightly edged up, though the process is still very slow. This is mainly due to a concurrent increase in inflation expectations which have reached their highest levels since early 2016.

Since the previous meeting of the Bank of Russia Board of Directors, yields on short-term OFZs rose, mostly reflecting the market’s expectations for the key rate path. Yields on medium- and long-term OFZs have also increased mainly due to elevated geopolitical tensions.

The Bank of Russia’s monetary policy will accelerate the formation of tight monetary policy conditions. It is required to return inflation to the target and limit the pass through of the current high inflation to long-term interest rates in the economy. This will solidify the trend towards higher appeal of retail deposits, protect the purchasing power of savings and ensure balanced growth for lending and the economy in general.

The balance of risks has further shifted towards proinflationary ones

The effect of proinflationary factors may be intensified by elevated inflation expectations and corresponding secondary effects.

During the pandemic, restrictive measures and structural changes in production chains have led to a temporary, though material, increase in companies’ costs. 20% of the incurred costs are expected to be offset during 2021. However, in all probability, this process may take longer or there will be no meaningful reverse. It will have a considerable effect on inflation movements.

Risks posed by external environment remain. They are associated with the speed of monetary policy normalisation in advanced economies, the situation in the global raw material and commodity markets, and geopolitical factors. The elimination of these risks may require a more meaningful reaction from the Bank of Russia’s monetary policy.

Labour shortages aggravate. This hampers the capacity of supply adjustment to the elevated demand.

The return of inflation to the target is shifted to the middle of 2023 and calls for a higher key rate path.

Average-for-the-year key rate and its forecast, % p.a.

In the baseline forecast, in 2022, the key rate will average 9.0–11.0% per annum. In 2023–2024, the annual key rate will average 7.5–9.0% and 5.0–6.0%, respectively.


If the situation develops in line with the baseline forecast, the Bank of Russia holds open the prospect of further key rate increase at its upcoming meetings. Key rate decisions will be made taking into account actual and expected inflation movements relative to the target, economic developments over the forecast horizon as well as risks posed by domestic and external conditions and the reaction of financial markets.