Monetary Policy Report

The key rate
has been raised by 75 bp

The inflation forecast
for the 2022

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

Inflationary pressure mounted
on the back of temporary factors

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

Inflation had been evolving significantly above the Bank of Russia’s July forecast. Price growth has accelerated since the second half of August largely driven by temporary factors. A more modest harvest of vegetables and growing livestock costs are behind a considerable acceleration in food inflation.

Core inflation indicators remain markedly above the target. This reflects a strong imbalance between the level of aggregate demand and output expansion capacity.

High inflation expectations are further fuelling current demand. After a decline in August–September, household and business inflation expectations are up again to multi-year highs. This in turn is pushing price growth higher across a wide range of goods and services.

With due consideration to actual price growth paces, the Bank of Russia revised its inflation forecast for 2021 significantly upwards to 7.4–7.9%. In 2022, inflation is expected to decline to 4.0–4.5%, including due to the monetary policy stance, already made and future key rate decisions.

The economy is broadly back on a long-term growth path; the recovery phase is over

GDP growth rate, % YoY

The economy broadly returned to a long-term growth path in the second quarter, with outperformance recorded in several sectors. The slower growth in the third quarter suggests that the recovery phase is over. Q3 GDP came under further pressure from the lower harvest and a worsened epizootic situation.

Economic expansion is largely supported by consumer demand. Household consumption was further shored up by one-off payments. The current state of the labour market also confirms the end of the recovery phase. Unemployment is near record lows, with the number of vacancies close to its record high. For new jobs to be filled, either the inflow of labour migrants will be required, or redistributions of the active labour force across regions, industries and enterprises.

Growing domestic and external demand and high corporate profits support investment activity.

The Bank of Russia maintains its GDP growth forecast for 2021–2024, with GDP estimated to grow 4–4.5% in 2021 and 2–3% in the next few years, in line with a sustained growth path.

Monetary conditions
are essentially unchanged

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 ten credit institutions attracting the largest amount of household deposits.

As inflation expectations are rising, monetary conditions are taking longer to adjust to the key rate increase. All segments sustain high lending growth rates. Current deposit terms are still insufficient to drive significant growth in the propensity to save.

OFZ yields between the September and October key rate decisions were up by 50–60 bp. At the short end of the curve, this growth reflects a revision of market expectations for the key rate path and, in the long end, global financial trends.

The balance of risks to the forecast is markedly tilted to the upside

The impact of pro-inflationary factors may be strengthened by elevated inflation expectations and the associated secondary effects.

Further upward pressure on prices may come from persistent disruptions in production and supply chains, labour shortages, and pandemic-induced structural changes in the labour market.

New waves of the pandemic may add to inflationary pressures. Demand is increasingly less influenced by restrictions, whereas supply is shrinking as business operations are suspended.

In external conditions, inflation risks are associated with energy and other commodity prices. The damping mechanisms work to protect the domestic market from fluctuations in global prices for commodities but not from rising prices for imports of final products that are made from those commodities.

Disinflationary risks for the baseline scenario remain moderate.

The return of inflation to target in 2022 may only be enabled through a higher key rate path

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

Under the baseline forecast, the Board of Directors expects the key rate to average 7.3–8.3% p.a. in 2022. It is not forecast to return to its long-term neutral range of 5.0–6.0% until mid-2023. In 2023–2024, the annual average key rate will be 5.5–6.5% 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 rises at its upcoming meetings. Key rate decisions will take into account actual and expected inflation movements 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.