Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting on 25 July 2025
Good afternoon. Today, we have made the decision to cut the key rate to 18% per annum.
Inflation, including its underlying component, is decelerating. The growth of consumer demand is slowing down gradually, and the expansion of lending is moderate. All these factors allow us to further cut the key rate.
It is tight monetary policy that has become a fundamental factor behind disinflation and the return of the economy to a more balanced growth path. We should therefore be prudent in making our further key rate decisions. Monetary policy should remain tight during a long enough period to ensure a sustained return of inflation to low levels.
I would now dwell on the reasons behind our today’s decision.
Firstly, the deceleration of inflation has become more pronounced.
Since the previous meeting, we have obtained a comprehensive view of the situation in May and June and can state that the current price growth rates over these two months approached 4% in annualised terms. Most measures of underlying inflation decreased to
The variance of price growth rates across the main goods and services groups as well as across Russian regions has somewhat decreased. However, it is still notably larger as compared to the period when inflation was low. Over the previous months, we were concerned about quickly rising prices for services because price movements in this segment are a good indicator of domestic demand dynamics. We can now see that price growth has started to decelerate in those market services where prices are less affected by one-off factors. These are, for instance, healthcare and personal services. Nevertheless, price pressures remain elevated in these segments and most notably in public catering. This is associated with, among other things, structural factors, such as changes in consumer preferences towards services, out-of-home food, and domestic tourism.
As for non-food goods, the lowest price growth rates were recorded in the segments of electronic devices, household appliances, and cars. Prices for certain items, e.g. computers, tablets, and home appliances, have even been declining for several consecutive months. Durables are the segment where the transmission of high interest rates to prices is the strongest and quickest. Interest rates impact prices through both a reduction in consumer lending and a stronger ruble.
In May and June, a slower rise in prices for certain volatile components of the consumer basket, such as fruit and vegetables as well as tourism services, also contributed to disinflation.
In July, vegetables have continued to cheapen faster than usually during this season, which is evidenced by the latest weekly statistics on price growth. However, monthly price growth rates in July will be higher overall than over the previous months, primarily because of the indexation of utility tariffs. Higher tariffs not only contribute to inflation directly, but may also involve the so-called second-round effects. Here is what I mean saying this. A significant rise in prices for socially important goods or services can affect households’ inflation expectations. This in turn will be influencing their decisions on consumption and savings and, accordingly, the overall price growth.
It is crucial to take into account this risk because inflation expectations remain elevated. They have stayed nearly unchanged among households over the past few months and have even edged up among businesses in July, for the first time over a long period.
I would like to stress that, although the current price growth rates have already approached 4%, the downward trend should still consolidate.
Secondly, the economy.
The expansion of demand is decelerating gradually and is becoming increasingly consistent with the economy’s capacities to ramp up output. This is a key factor of disinflation. Manufacturers are decreasing their expectations regarding the rise in demand, especially in the consumer segment.
Investment activity remains high, including owing to government support in priority sectors. We expect that investment will expand this year, although its growth rate will be lower than over the previous two years.
Labour market tightness has somewhat decreased recently. The number of companies reporting staff shortages has declined. Enterprises plan a more moderate indexation of wages this year. However, the current growth rate of wages in the economy as a whole is still higher than that of labour productivity, according to our assessments. Unemployment stays at a record low.
Staff shortages remain a risk factor for inflation. If the expansion of domestic demand accelerates again without a commensurate increase in productivity, it will soon clash with a deficit of labour resources and will largely translate into price growth.
Thirdly, monetary conditions remain tight but have slightly eased compared to June.
Nominal interest rates have decreased in most segments of the financial market. This has resulted from the reduction in the key rate and market expectations regarding its future path. Real interest rates have declined less notably, taking into account the slowdown in the current price growth. The tightness of non-price lending conditions has generally remained unchanged.
Credit is expanding more slowly than over the previous two years. The trends stay uneven across the segments. The consumer loan portfolio has continued to contract, whereas mortgages and corporate lending have been increasing moderately. According to our assessments, credit activity is affected by more modest demand for borrowing rather than by credit supply constraints associated with banks’ capital adequacy or macroprudential requirements.
The annual growth of lending to organisations and households has continued to decelerate, generally in line with our expectations, just like the expansion of money supply.
The growth rates of household deposits have edged down since the beginning of the year. Such a decrease is natural as the expansion of money supply, lending, and incomes decelerates. Nevertheless, deposit rates remain attractive and the demand for time deposits is still high. I would like to remind you that, when we identify whether households prefer to consume or to save, we factor in not only deposits but also loans and compare them against income dynamics. We assess how much of their incomes households use to consume, save or repay debts, as well as whether they raise more loans for new purchases or not. Combined, the trends in these indicators now show that households still prefer to save and people’s propensity to save remains at record-high levels.
As monetary policy tightness decreases, the savings rate will be declining, but this will be a gradual process. This means that households’ savings will continue to grow albeit more slowly. This is in line with the objective to maintain low inflation.
Briefly about external conditions.
As compared to April, we have revised downwards our forecast of Russian crude prices to $55 per barrel for 2025 and 2026. Trade tensions between the largest economies will be weighing on external demand, while an expansion of OPEC+ oil production will increase the supply of oil. In these conditions, we have also slightly decreased the forecasts of exports and the current account surplus for the next two years.
The ruble exchange rate is affected by flows not only in the current account but also in the financial account of the balance of payments. Owing to high interest rates, ruble assets remain more attractive to Russian households and companies as compared with foreign assets. Coupled with more moderate demand for imports, this ensures the stability of the ruble exchange rate despite a slight decline in exports.
I will now speak of risks to our baseline forecast.
I have already mentioned the key ones, which are risks associated with inflation expectations and the labour market. In this regard, we are still far from a situation where we could say that the danger of price growth acceleration has passed. Risks of a deterioration in the terms of external trade, primarily associated with a decline in global oil prices, as well as geopolitical risks persist.
Overall, proinflationary risks still prevail. Nevertheless, making our decisions, we take into account disinflationary risks as well. The main one of them is a faster cooling in credit and demand than expected in our baseline forecast.
Fiscal policy remains an important factor for our forecast. We assume that the Government will stick to the fiscal rule in 2025 and further on. If the fiscal parameters change, we might need to adjust the projected key rate path.
Winding up, I would like to comment on our future decisions.
We are on the way back to the inflation target, but this journey is not over yet. We can already see the first results which have allowed us to cut the key rate again today, gradually adjusting the monetary policy tightness to the easing of inflationary pressures. Furthermore, we have revised downwards our forecast of the average key rate to
However, the return to the target does not mean just a few months of the current price growth rate being close to 4%. The return to the target implies stabilising inflation at a sustainably low level, including both the actual inflation rate and inflation perceived by households and businesses, which is what we call inflation expectations. To achieve this result, we need to be patient and prudent in our decisions, especially when disinflationary trends have emerged just recently, preceded by a long period of elevated inflation.
Monetary policy has ensured the reverse of the trend and inflation has started to decelerate. Therefore, monetary policy should remain tight for as long as needed to sustainably bring inflation back to 4% in 2026 and stabilise it close to this level.
Thank you for your attention.