Monetary Policy Guidelines
for 2024–2026

The goal of monetary policy is to maintain inflation close to 4%. The inflation target is effective on a permanent basis. It 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 by the Russian Federal State Statistics Service (Rosstat).

The studies within the Monetary Policy Review prove that the inflation target of 4% chosen in 2015 was reasonable. Besides, by the end of 2021, the Russian economy had formed prerequisites for reducing the inflation target in the future. However, given the dramatic alterations in the economic environment in 2022, the Bank of Russia should consider this issue more cautiously. After inflation stabilises close to 4% and the overall economic uncertainty decreases, the Bank of Russia will assess the reasonableness and possible time of a decrease in the inflation target. If the Bank of Russia makes a decision to lower the inflation target, it will be announced in advance.

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 the periods of structural economic transformations.

In order to limit financial stability risks amid the blocking of the Bank of Russia’s foreign currency accounts and the imposed sanctions, the Bank of Russia restricted cross-border capital flows from February 2022. The restrictions that are still in place are predominantly of non-economic and bilateral nature.

Despite the effective capital controls, the exchange rate of the ruble remains floating. In the new conditions, its movements to a greater extent depend on the ratio of importers’ demand for foreign currency to exporters’ supply of foreign currency, and to a lesser extent – on capital flows. As the economy adapts to the enacted foreign sanctions, the effect of capital flows on the dynamics of the exchange rate is becoming stronger, while staying 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. Considering that its foreign currency accounts have been blocked, the Bank of Russia conducts these operations in available currencies (Chinese yuan).

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 at the target level. The key rate impacts market interest rates which influence households’ and businesses’ propensity to consume, save, and invest. This factor determines domestic demand that influences price movements.

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

The findings of the Monetary Policy Review show that monetary policy has become much more transparent in recent years.  Furthermore, the Bank of Russia will continue to enhance its communication by increasing the number of published macroeconomic forecast indicators, releasing details about the discussion of its key rate decisions, publishing the codes of forecast models, expanding the use of the practice of multi-layered communication when one and the same material is adapted so as to target various audiences, etc.

The Russian economy was quickly adapting to the changed environment. Companies were finding new suppliers and sales markets and rearranging their logistics and settlements. By the middle of 2023, output in industries focusing on domestic demand generally exceeded the pre-crisis level of late 2021. Capacity utilisation rates were growing. The situation in the labour market was getting more complicated: staff shortages were becoming more acute, and the unemployment rate was at a record low. This was hindering a further expansion of output.

Along with this, consumer sentiment was improving, wages were growing, and lending was expanding fast, which promoted a recovery in consumer demand. As a result, companies were passing through their rising costs to output prices to a greater or lesser extent. Consequently, from autumn 2022, current inflation pressure started to intensify from decreased levels. Moreover, prices were pushed up by the ruble depreciation caused by worsening trade conditions. Proinflationary risks dominated and were growing.

In these conditions, the Bank of Russia was gradually toughening the signal regarding its future key rate decisions, while still keeping the key rate unchanged. In June 2023, the Bank of Russia admitted the possibility of a key rate increase at its next meetings.

My mid-2023, the economy had deviated upwards from a balanced growth path. This was evident from the aggravation of current inflationary pressure, among other things. Current price growth rates, including the majority of trend inflation measures, exceeded 4% in annualised terms. The acceleration of inflation was associated with materialisation of considerable proinflationary risks. The key driver of faster inflation was the continuing steady expansion of domestic demand that surpassed the capacities to ramp up supply. Amid elevated demand, it was easier for companies to pass through their rising costs, spurred by staff shortages among other factors, to prices. The further weakening of the ruble was also pushing prices higher. The depreciation of the national currency resulted from the surge in the demand for imports coupled with the contraction of exports, associated with the sanctions, which limited the inflow of foreign currency into the Russian market. Companies were quickly passing through the ruble weakening to prices amid the rise in households’ and businesses’ inflation expectations.

Such a situation required a prompt monetary policy response. In order to return the economy to a balanced growth path and lower inflation to the target of close to 4% in 2024, the Bank of Russia raised the key rate in July by 1 pp to 8.5% per annum in July, by 3.5 pp to 12.0% per annum at its unscheduled meeting in August, by 1 pp to 13.0% per annum in September, and by 2 pp to 15.0% per annum in October. Overall, the key rate was increased by 7.5 pp to 15.0% per annum. Besides, when updating the forecast, the Bank of Russia was revising the key rate path upwards.

In 2021–2023, the Bank of Russia carried out its Monetary Policy Review to assess how effective the selected monetary policy regime is and how well the current monetary policy parameters conform to the changing environment.

At the first stage, Bank of Russia specialists carried out studies. In spring 2023, the Bank of Russia discussed the preliminary results of the studies with the expert community. In May 2023, the Bank of Russia published research reports, analytical notes, and the consultation paper summing up the findings of the studies on its website.

At the second stage, in May–June 2023, the Bank of Russia discussed the findings of the studies with a wider audience – representatives of public organisations, businesses, the academic community, and government authorities in all Russian regions. In July 2023, the results of the studies were discussed at the Bank of Russia’s Financial Congress.

The findings of the studies and the results of the public consultations were taken into account in the course of preparation of the Monetary Policy Guidelines for 2024–2026. Nevertheless, the discussion within the Monetary Policy Review will continue.

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

Switching to the inflation targeting regime 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 within the Monetary Policy Review prove that the inflation target 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 is proven by both model-based calculations and the analysis of the factors for setting the inflation target (including in the global practice). However, given the dramatic alterations in the external environment and the current structural transformation of the Russian economy, the Bank of Russia should consider this issue more cautiously. After inflation stabilises close to 4% and the overall economic uncertainty decreases, the Bank of Russia will assess the reasonableness and possible time of a decrease in the inflation target.

The conditions of the implementation of monetary policy in Russia suggest that it would be reasonable to preserve the type of the inflation target as a point. Neither academic papers nor the global practice provide any convincing evidence that the inflation target set as a range more efficiently helps anchor inflation expectations. In addition, the Bank of Russia’s explanations of the rationale behind its monetary policy decisions are highly transparent, which enables it to continue using the point.

Considering the findings of the analysis, the Bank of Russia’s focus remains the same, that is, the inflation target is effective on a permanent basis. This is emphasised in addition to the specified level and type of the inflation target. This implies that monetary policy is always aimed at returning inflation to 4%. However, taking into account the time-lagged effect of monetary policy, the Bank of Russia cannot make a commitment to ensure inflation at the level of 4% at any moment.

The Consumer Price Index (CPI) as the measure for inflation targeting is in line with the generally accepted practice used by central banks and to the greatest extent meets the criteria that are important for promoting confidence in this measure.

The Bank of Russia raised the estimate of the longer-run real neutral interest rate for the Russian economy by 1.0 pp to 2.0–3.0% per annum. 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 6.0–7.0% per annum. In the new conditions, the neutral rate of interest is largely determined by internal factors, whereas external factors only have an indirect impact on it. The Bank of Russia raised the estimate of the longer-run neutral interest rate due to the changes in the estimates of potential growth rates of the Russian economy, the global neutral interest rate and the country risk premium, as well as more expansionary fiscal policy over the forecast horizon. The Bank of Russia will reassess the impact of the combination of these factors on the level of the neutral interest rate as it accumulates relevant data.

The Bank of Russia has been carrying out regular surveys of companies for 25 years already. 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.

Fiscal policy is a key factor influencing the dynamics of aggregate demand, inflation and, accordingly, the macroeconomic forecast and monetary policy decisions made by the Bank of Russia based on this forecast. The medium-term baseline forecast presented by the Bank of Russia relies on the budget projections for 2023–2026 announced by the Russian Ministry of Finance and submitted to the State Duma on 29 September 2023, as well as the Bank of Russia’s own macroeconomic assumptions. In addition, the Bank of Russia takes into account the decision made by the Russian Government to return to the parameters of the fuel damper mechanism effective until September 2023.

Overall, the budget projections of the Russian Ministry of Finance suggest a more significant fiscal stimulus in 2024–2026 compared to the earlier estimates. If the fiscal stimulus turns out to be smaller than currently estimated, the return to neutral monetary policy will be faster. To the contrary, if the budget deficit increases further, proinflationary risks might grow, which will require tighter monetary policy in order to bring inflation back to the target in 2024 and stabilise it close to 4% in the future.

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 to 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.

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. Within the inflation targeting strategy in a long-term equilibrium, consumer prices rise at a pace conforming to 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 short-term deviation of the economy from its equilibrium which is called a gap.

Economic publications refer to an output gap most often. 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 uncertainty about the accuracy of its estimates is taken into account in the course of the implementation of 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 be even 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 macroprudential policy to a greater extent. Nevertheless, when preparing its monetary policy decisions, the Bank of Russia 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.

On 16 October 2023, the Bank of Russia transformed the standard liquidity providing mechanism into the main and additional ones. The objectives of the operations conducted within the main and additional mechanisms now differ, just as their key parameters, including interest rates, collaterals, and maturities. Nevertheless, the Bank of Russia follows the same approaches to managing the banking sector liquidity, and banks will be able to raise financing as before.

Subsidised lending programmes have proven to be effective as an anti-crisis measure. However, the Bank of Russia does not consider such programmes as an efficient mechanism for providing long-term support to the national economy in general.

Today, loans issued at subsidised interest rates total over ₽11 trillion, which is 14% more than the value of the loan portfolio and 7% more than GDP.

In terms of fiscal policy, subsidised lending is an efficient instrument to expand demand. However, such subsidising is only appropriate when a lending programme is offered for a limited period and covers only short-term loans. Where maturities of subsidised lending become longer, the overall costs for subsidising interest rates on such loans might be comparable with the loan amount. Moreover, the costs for subsidising interest rates on long-term loans issued earlier limit the flexibility of fiscal policy many years after the expansionary effect of such loans has been exhausted.

In terms of monetary policy, subsidised lending might have mixed effects. On the one hand, banks select borrowers more cautiously during periods of economic instability, while households and companies prefer not to increase their debt burden. Accordingly, the effectiveness of the monetary policy transmission mechanism decreases, and a reduction in the key rate might be insufficient to encourage demand. On the other hand, interest rates on subsidised loans do not depend on monetary policy, easing monetary conditions in the economy and distorting the functioning of the interest rate channel of the transmission mechanism. The higher is the percentage of loans at non-market interest rates in the economy, the more significant should be a key rate change to ensure an adequate effect on credit activity, demand, and inflation.

The impact of subsidised lending on the economy in general is also a matter of dispute. Subsidised loans have the so-called substitution effect and involve significant risks of the use of borrowings not as intended and a rise in financial instability due to a growing percentage of financially unstable borrowers.

The foreign sanctions imposed in early 2022 and the adopted response measures in the form of cross-border capital controls significantly reduced the dependence of the Russian financial system on the external environment. This in turn has changed the view of how to respond to shocks of various nature through monetary policy measures and how these decisions affect the economy. In other words, the monetary policy transmission mechanism has altered. The main change is related to the functioning of the foreign exchange channel as its role has notably decreased. In the conditions of the effective capital controls, the impact of monetary policy on the exchange rate is becoming more extended over time and indirect. Previously, a decision on the key rate translated into prices for financial instruments and, further, into the exchange rate directly, whereas now it influences first the demand for imported goods through the interest rate channel and only then – the ruble exchange.

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 investments. 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.

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 is also 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). The annual growth rate of the CPI 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. Trend components of inflation are most helpful to comprehend medium-term inflation trends.  There are multiple approaches to assessing the trend 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. Contrastingly, model-based approaches use an estimate of an equilibrium path of inflation within a certain model. Overall, none of the trend inflation measures can be considered the best one in all situations. In practice, each of them has its pros and cons. Accordingly, it is necessary to monitor a wide range of these measures.

In 2022, the deviation of inflation from the target of 4% reached its maximum over the entire period of inflation targeting in Russia. The major proinflationary factor was a surge in producer costs provoked by the restrictions on imports, difficulties with purchases of raw materials and components, and the announced termination of supplies of a number of foreign goods to the Russian market. Other factors accelerating inflation included the ruble weakening, overheating in the labour market, rising real wages and record-low unemployment, price changes caused by the supply adjustment, the change in external demand predominantly associated with the contraction of physical trade flows, and oil price changes. Domestic demand had a disinflationary effect as of the end of the year. However, after the slump in 2022 H1, it started to grow again. By the end of the year, demand exceeded the level that would have had a neutral effect on inflation. The measures implemented by the Bank of Russia and the Government of the Russian Federation to support the adaptation of the domestic economy to the changed environment had a weak proinflationary effect.

One-off inflation factors can arise due to both demand- and supply-side issues. Their impact can be temporary or more persistent, e.g., due to secondary effects. The influence of temporary one-off factors diminishes 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. Some one-off factors can have a more persistent effect. Such one-off factors 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 some 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 trend 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 implied inflation for inflation-indexed federal government bonds (OFZ-IN). Overall, households’ inflation expectations and companies’ price expectations remained elevated in 2022 H2 and in January–October 2023. This is a critical factor taken into account by the Bank of Russia when making its monetary policy decisions.

Currently, the inflation targeting strategy is followed by 47 countries and integration associations. Nearly all of them are classified by the World Bank as high- or middle-income economies. According to assessments as of 2022, these countries account for approximately 70% of global GDP. Most papers prove that inflation targeting is efficient not only for maintaining price stability, but also for improving economic growth prospects.

The formats of medium-term inflation targets used by central banks worldwide significantly vary in terms of both levels and types. Advanced economies normally set their inflation targets close to 2%. Target levels in emerging market economies (EMEs) vary more notably, namely from 2% to 8%. Nevertheless, EMEs mostly set their inflation targets in the range from 3% to 4%. As to the types of inflation targets, a point with a range of deviations is the most widely used one. Advanced economies use a point more often.

By the end of 2023, inflation remains elevated worldwide. In the first place, this is associated with an inadequate and extended response of central banks, primarily in advanced economies, to the exacerbation of persistent inflation pressure amid the rapid recovery of the economies from the pandemic-induced shocks. The escalation of geopolitical tensions in 2022 also had notable proinflationary effects. Although policy rates in many countries reached their multi-decade highs by early 2023, the expected period of the return of inflation to the targets in both EMEs and advanced economies has not been decreasing from 2022 and remains long. Nevertheless, central banks in most countries remain committed to tight monetary policies required to bring inflation back to steadily low levels.

The Bank of Russia continues to develop the digital ruble which is the third, new form of the Russian ruble, in addition to the cash and non-cash forms. In terms of its features, the digital ruble will be similar to both cash and funds in bank accounts. Digital rubles, just as cash, are the Bank of Russia’s liabilities. However, the Bank of Russia will issue them in the digital form which is also typical of banks’ non-cash funds. The introduction of the digital ruble will ensure a number of benefits, namely better financial inclusion, including in remote and scarcely populated areas, the possibility to access a digital wallet via any financial institution and despite limited access to the internet, as well as the development of new payment infrastructure. The key advantage is that the third form of the Russian ruble will help optimise the cost of settlements. This will reduce transaction costs and support the competitiveness of the Russian economy. The introduction of the digital ruble will not affect the fundamental principles of the functioning of the banking system and the principles of the implementation of monetary policy.

In 2022, the Russian economy and financial market faced a whole range of various challenges amid the unprecedented sanction pressure. Owing to the implemented anti-crisis measures and the earlier consistent efforts aimed at enhancing the resilience of the financial sector, the situation was quickly stabilised. As a result, the financial market did not only prove its resilience supplying necessary resources to the economy, but also continued to develop. In addition to the anti-crisis measures taken in 2022, the Bank of Russia jointly with the Government of the Russian Federation prepared a plan for the development of the financial market in the changed environment. It was stipulated in the Russian Financial Market Development Programme for 2023–2025. In 2023, the Bank of Russia revisited the financial market development plan, presenting it in the draft Russian Financial Market Development Programme for 2024–2026 that is consistent with the previous document.

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.