The Central Bank of Russia (CBR) held its key interest rate unchanged at the record high of 21% in its December meeting, surprising markets that expected a 200bps rate hike to 23%.
The decision took place following reports that CBR Governor Nabiullina recently talked with President Putin, who called for a ‘balanced’ decision, and Russian business leaders, who have been vocal against high interest rates despite soaring inflation.
The central bank is independent by law, but analysts said the pressure from business had become too strong to ignore. “The pressure … worked, and the central bank decided to stop,” said economist Evgeny Kogan according to Reuters. The current rate is still the highest since the early years of Putin’s rule, when Russia was recovering from the economic chaos of the 1990s.
The central bank cited low credit activity as the warrant for the pause in rate hikes, but reiterated that underlying inflation continued to rise amid higher expectations from households and business, driving the bank’s inflation forecast to rise for 2025 and 2026.
The central bank also noted that the significant weakening of the ruble, unbalanced budget spending, and the ongoing labor force crisis contributed to soaring inflation. November data showed that annual headline inflation was at 8.9%, but early forecasts from the CBR have December’s print near 9.5%, translating to the highest since February 2023.