The Bank of Russia explained why it left the key interest rate at the same level

“When weighing the risks of the decisions being discussed, the participants observed that at the current stage they are more serious if the interest rate is increased than if it is maintained. Therefore, if the key rate is maintained in December, we cannot exclude the risk that credit growth will accelerate again in the coming months and inflation and inflation expectations will continue to rise,” the report says.

It follows that, given the increase in inflation and inflation expectations, the Central Bank will continue to tighten monetary policy. The summary emphasized that a “significant” rise in the key rate would likely be necessary to reverse lending and inflation trends.

However, with a rate hike in December, there was a possible “risk of excessive tightening of monetary conditions”, which could lead to a “scenario of excessive cooling of economic activity, which would lead to a subsequent significant deviation from inflation down.” of the 4% target, the summary says.

The Central Bank explained that the deviation of inflation from the target contradicts the principles of the regulator’s monetary policy within the framework of the inflation targeting regime, so “a pause in the change of the key rate is now another decision balanced”.

The day before, on December 27, economists polled by Reuters predicted that the Bank of Russia would keep the key interest rate at 21% during the first half of 2025. At the same time, by the end of next year inflation should fall to 6.6% and get closer to the 4% target, which will allow the Central Bank to reduce the rate to 18% in the fourth quarter, analysts noted.

At the end of December, the director of the monetary policy department of the Central Bank, Andrei Gangan, in an interview with Interfax, stated that the regulator estimated inflation at the end of 2024 between 9.6% and 9.8%, while which in October predicted an annual inflation rate in the range of 8% to 9.8% 8.5%.