The Central Bank announced the danger of lowering the key rate

“Reducing the key interest rate to further stimulate demand now, when demand already exceeds supply, is dangerous,” the Central Bank representative emphasized.

Even if producers channel cheap credit into investment, this will not immediately provide them with additional resources. “With shortages of labor, new equipment and transportation capacity, financing at low rates will only intensify competition among companies for these resources. Consequently, it will not increase production, but rather costs and, with them, the prices of final products,” the Bank of Russia noted.

They also opposed increasing the volume of preferential loans. In a situation of overheating of the economy and limited physical resources, increasing lending volumes may require an “even more significant” increase in the key rate and keeping it at a high level “for longer” to return inflation to the target, said. explained the Central Bank.

At the meeting on December 20, the Bank of Russia kept the key interest rate at a record level of 21% per year. The Central Bank explained the decision by saying that the tightening of monetary conditions in Russia turned out to be more significant than expected in the previous October decision. Most economists surveyed by RB.RU predicted that the regulator would increase the rate to 23%.

Under current conditions, the Central Bank will proceed to reduce the interest rate no earlier than mid-2025, Natalia Orlova, chief economist at Alfa Bank, noted in a conversation with RB.RU. To do this, the regulator will have to ensure that “inflation has at least stabilized,” but in the meantime, according to this indicator, “our trajectory is getting worse,” said the expert.

Speaking in the State Duma on November 19, Central Bank President Elvira Nabiullina stated that the main conditions for reducing the rate would be a slowdown in inflation and the absence of new economic shocks. He noted that the key rate effectively counteracts inflation. “If we had left the interest rate at last year’s level, inflation would now have reached 20-30%, and possibly higher,” the president of the Bank of Russia stressed.