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In the quarterly Monetary Policy Report, in the follow up of the key rate meeting, the Bank of Russia presents its vision and assessment of the current economic situation and publishes the macroeconomic forecast underlying its key rate decisions.

Annual inflation is declining, but current price growth rates are gradually going up from low levels. In 2023, inflation will be 5–7%

Economic activity is on the rise, GDP forecast has been improved

Monetary conditions remain broadly neutral

Compared to the October forecast, the Bank of Russia may need a higher key rate path to stabilise inflation at 4% target in 2024


Current price growth rates are gradually increasing

As of 6 February 2023, annual inflation slowed down to 11.8%, but current price growth rates are increasing, in part due to stable components. In recent months, headline inflation has been also affected by the indexation of housing and utility rates, higher costs incurred by vegetable producers, and a weaker ruble. Inflation expectations have slightly abated, though remain elevated. The Bank of Russia forecasts that prices will increase by 5–7% this year, overall. Inflation will return to 4% in 2024.

Inflation, inflation expectations and Bank of Russia key rate

Source: Rosstat, Bank of Russia.

Economic activity is on the rise, the contribution of government spending to aggregate demand has increased

Relying on the data for the second half of 2022 and recent statistics for January 2023, the Bank of Russia has updated its medium-term macroeconomic forecast. The estimate of GDP decline in 2022 has been improved to (-2.5)%, GDP forecast for 2023 has been raised to (-1.0)—(+1.0)%. The higher GDP path is conditioned on both a smaller than expected decline in exports and a greater contribution of government spending to aggregate demand. In particular, growing government investment is replacing the decline in private sector investment activity. In late 2022, consumer demand remained subdued, but from early 2023, it has shown signs of recovery amid improved consumer sentiment.


Key forecast parameters

Growth, % YoY, unless indicated otherwise

2023 2024 2025
Inflation, % change, Dec on Dec 11.9 5.0–7.0 4.0 4.0
Gross domestic product −2.5 (−1.0)–(+1.0) 0.5–2.5 1.5–2.5
% change, Q4 on Q4 of the previous year −4.6 (−1.0)–(+1.0) 0.5–2.5 1.5–2.5
Household final consumption expenditure −1.8 0.0–2.0 0.0–2.0 1.5–2.5
Gross fixed capital formation 5.5 (−4.5)–(−1.5) (−2.0)–(+1.0) 1.0–3.0
Banking system’s claims on the economy in rubles and foreign currency, including: 12.0 9–13 9–14 8–13
on businesses 13.2 8–12 8–13 8–13
on households,  including: 9.4 10–14 9–14 8–13
housing mortgage loans 17.6 12–16 10–15 10–15

Source: Bank of Russia.

Monetary conditions remain broadly neutral, while individual indicators changed diversely

Since the December meeting, the OFZ curve has moved upwards, with a further increase in its slope. Yields continue to be shaped by higher economic uncertainty coupled with a considerable supply of government securities in the primary market. The situation in the lending and deposit markets has remained broadly unchanged. Credit to the economy continued to expand at a high pace. Budget expenditures made an additional contribution to the money supply growth in December and January.

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

Source: Bank of Russia.

* Maximum ruble deposit rate in the top ten banks.


The Bank of Russia may need a higher key rate path to return inflation to target

The balance of inflation risks is tilted to the upside. Proinflationary risks are associated with the persistence of elevated inflation expectations, the possibility of a rapid recovery in the propensity to consume, labour market constraints, as well as the impact on aggregate demand from the growth in, and acceleration of, budget expenditures. A higher key rate path, than assumed in the Bank of Russia’s October forecast, may be needed to return inflation to its target of close to 4%. According to the baseline forecast, the annual average key rate will be 7.0–9.0% p.a. in 2023, 6.5–7.5% p.a. in 2024, and 5.0–6.0% p.a. in 2025.

Bank of Russia annual key rate, % per annum

Moving forward, 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 transformation processes, as well as risks posed by domestic and external conditions and the reaction of financial markets. If pro-inflation risks intensify, the Bank of Russia will consider the necessity of key rate increase at its upcoming meetings. According to the Bank of Russia’s forecast, given the current monetary policy stance, annual inflation will come in at 5.0–7.0% in 2023 to return to 4% in 2024.
Department responsible for publication: Monetary Policy Department
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Last updated on: 20.02.2023