Last February warning: the Central Bank has included the risk of key rate hike in the forecast

The main intrigue of the meeting, at which the Central Bank expectedly kept the key rate at 21%, was the medium-term forecast - the regulator has included in it the possibility of growth of the key rate above 22% in 2025, as well as significantly worsened expectations of average inflation for the year. At the press conference, Central Bank Chairman Elvira Nabiullina once again gave a tough signal: at the very least, the regulator does not consider the end of the Ukrainian conflict as a "base case scenario". At the same time, the growing budget deficit may indeed push the Central Bank to tighten its policy already this spring. Why it is too early to relax and not to expect a rapid easing of the Bank of Russia's policy - in the material of "Izvestia".

Central Bank decision on the key rate in February 2025

The Central Bank decided to keep the key rate at 21% at the meeting on February 14, follows from the regulator's press release. Tight monetary policy (MP) creates conditions for lower inflation, but the balance of risks is still in favor of price run-up.

- If the gained rigidity is not enough, we will be ready to return to the issue of raising the rate at the next meeting," said Elvira Nabiullina.

The regulator gave a tough signal not only in words, but also in its medium-term forecast, which it publishes for every second meeting on the key rate.

In the document, the Central Bank raised expectations for the average rate in 2025. If earlier its level was supposed to be 17-20% for the year, now the range has been raised to 19-22%. This means that the Bank of Russia allows for an additional rate hike to 22-23% this year.

In addition, the Central Bank expects more serious pressure on prices in 2025. According to the regulator, average inflation for the year will be in the range of 9.1-9.8%, while at the end of 2024 it amounted to only 8.4%. Nevertheless, by the end of the year it is expected to slow down the rate of price growth to 7-8%. At the same time, the head of the Central Bank made it clear: "No one can see the future, no one has a crystal ball. And we, like many market participants, analysts and the government make forecasts based on the data that we have at the moment".

The Bank of Russia also notes that the pressure on prices is still high, as demand growth is far outpacing production capacity in Russia. This factor has only intensified in the second half of 2024, leading to an acceleration in monthly inflation.

- If you read the updated forecast of the Central Bank between the lines, there is no doubt that this year we can expect high inflation rates and some crisis manifestations," said economist Andrei Barkhota.

At the same time, the regulator records a slowdown in lending and the growth of savings due to high interest rates in the economy. These factors should restrain demand and slow inflation.

Future decisions of the Central Bank will be strongly influenced by fiscal policy, the Bank of Russia noted. For example, according to preliminary January data, in the first month the treasury deficit of Br1.7 trillion has already exceeded the plan for the year (Br1.2 trillion).

The Central Bank commented on the scenarios at the end of the Ukrainian conflict

The decision of the Central Bank confirmed the fact that, from the position of the regulator, there have been no serious changes in the situation with price growth since the December meeting, said economist Andrei Barkhota. This is despite the news about the negotiations between Russia and the U.S. on the Ukrainian conflict, which has already weakened the dollar to 90 rubles / $ and supported the stock market (Mosbirzh index went above 3200 p.).

However, the base scenario of the Central Bank proceeds from the unchanged geopolitical conditions, said Nabiullina at the press conference. She emphasized that there is no point in "speculating" about the end of the Ukrainian conflict.

- Everything will depend on the development of the situation. Now it seems to me impossible to calculate the exact impact on the economy and inflation," she emphasized.

According to Andrei Barkhota, despite the news about the negotiations, there has been no active progress in the lifting of sanctions, and there is no reason to lower the key rate.

At the same time, high inflation, the Central Bank's policy and the pressure on the quotations of companies are related to the sanctions, emphasized Hovhannes Hovhannisyan, director of the analytical department of "Tsifra Broker". According to him, the normalization of geopolitics can strongly affect prices in Russia - through the recovery of exports and saturation of the domestic market by increasing imports.

In spring 2025, the trend towards de-escalation of the Ukrainian conflict is likely to become clearer, said Andrei Barkhota. But the outcome may not be obvious: there is a risk that the parties will get bogged down in discussing the possibility of territorial concessions and deployment of a peacekeeping contingent.

However, the Central Bank does not completely give up the chances for a positive development of events. In November, Elvira Nabiullina noted the prerequisites for a "disinflationary" scenario of economic development. In this case, the average key rate for 2025 will be in the range of 15-18%, which is much lower than the baseline scenario. In fact, the Central Bank sees the possibility of a positive outcome of events, but insures itself against possible risks.

What will happen to the key rate in the spring of 2025?

In case of further growth of budget expenditures above expectations, the key rate may well rise to 22-23% this spring, the press service of the National Rating Agency (NRA) admitted. At the same time, even in the baseline scenario, it will not be lowered before August-September 2025. It is in this period will be clear about the parameters of the budget of 2026 - the Central Bank will take into account the possible growth of expenditures to support the economy, said Anton Tabakh, chief economist of the rating agency "Expert RA".

- The head of the Bank of Russia has repeatedly noted that the mega-regulator does not see any "ceiling" for the key megaregulator. The rate will be such that will allow to control inflation. Therefore, the forecast of 22% is quite realistic," said Meri Valishvili, an economist at the Plekhanov Russian Economic University.

Banks are reducing deposit rates - if at the beginning of 2025 they could reach 25%, now they are on average below 22% for the largest players. This may encourage the population to move away from the savings strategy and increase consumption. Ultimately, according to Andrei Barkhota, there is still a risk of the key rate rising to 22-23% at the meetings in March and April.