Monetary Policy Report

Key rate is down to 6.25% p.a.

Inflation forecast
for the end of 2020:

The Bank of Russia will consider the necessity of further key rate reduction in the first half of 2020

When making its decision to cut the key rate, the Bank of Russia considered the following factors:

Inflation continues to decline faster than expected

Inflation and BoR key rate, YoY

Revised inflation forecast for the end of 2019 is 2.9–3.2%

Inflation reduction is driven by a number of factors:

  • larger food supply due to a good harvest,
  • ruble appreciation,
  • inflation slowdown in Russia’s trading partners,
  • subdued external and internal demand

Annual inflation will temporarily fall below 3% in 2020 Q1 when the effect of the VAT rate hike is factored out from its calculation. In the second half of the year, inflation will be returning to around 4%

Household inflation expectations decline but stay above the 2018 lows

Household inflation expectations and inflation, YoY

Inflation expectations remain sensitive to one-off events

Business price expectations have remained overall unchanged in the last few months

Monetary conditions continue to ease

OFZ yields and the Bank of Russia key rate, %

OFZ yields are at their lowest levels for the last few years

Interest rates in the deposit and credit market are going down. In October, the average housing mortgage interest rate touched its new all-time low

Real deposit rates remain positive, which supports the attractiveness of savings

The decisions to cut the key rate and the decline in OFZ yields create conditions for a further reduction in deposit and lending rates; this will support the expansion of corporate and mortgage lending

In 2019, the GDP growth rate will be close to the upper bound of the forecast

GDP growth, YoY

The Q3 results show that economic growth accelerated. In 2019, the GDP growth rate will be close to the upper bound of the Bank of Russia forecast of 0.8–1.3%

In September, budget spending on national projects notably increased supporting economic growth

The Bank of Russia expects that the GDP growth rate will gradually increase to 1.5–2.0% in 2020 and to 2–3% in 2022

Disinflationary risks exceed pro-inflationary risks over the short-term horizon

Disinflationary risks are primarily related to the state of domestic and external demand and to a rise in supply of farm produce

The Bank of Russia also takes pro-inflationary factors into consideration, such as: risks of trend reversal in the food market and risks of a more pronounced slowdown of global economic growth

The aggregate effect of five earlier key rate cuts will be gradual and its estimation will take time

Risks posed by budget expenditure growth in 2020 remain low because the rise in expenditure is likely to be distributed over time


If the situation develops in line with the baseline forecast, the Bank of Russia will consider the necessity of further key rate reduction in the first half of 2020

The Bank of Russia still sees room for a slight decrease in the key rate but, both in February and at the next meetings, will comprehensively assess the reasonableness and relevance of such a decision taking into account the entire range of new data