Inflation Trends, Deposits, and the Key Rate in Russia: What to Expect

Inflation trends and the base rate stance

Dubinin told socialbites.ca that the current inflation trend supports keeping the base rate at 16 percent.

He added that there should be no change in the rate for now. Inflation signals are mixed: February showed a quickening, followed by signs of a slowdown. He believes it is not appropriate to alter the rate at the moment, and the current trajectory of inflation argues in favor of stability.

Rosstat data show that in Russia the inflation rate varied week by week in February 2024, with 0.11 percent from February 20 to 26 and 0.21 percent from February 13 to 19, and 0.16 percent from January 30 to February 5. The subsequent week posted 0.13 percent. While consumer inflation slowed to 0.09 percent in the week ending March 4, the annual price increase stood at 7.59 percent, up slightly from 7.58 percent the prior week.

Last year the central bank raised the rate five times, bringing it to 16 percent on December 15, and it remained at that level through February 16.

What is the key rate?

The key rate, sometimes called the floor, is the minimum borrowing cost at which commercial banks obtain funds from the Central Bank and then lend to businesses and households.

This instrument forms the core of monetary policy for the Central Bank of Russia. The key rate is set by the board of directors, which includes the central bank governor and a panel of regulatory experts. The board’s composition is approved by the State Duma for a five-year term, and meetings follow a quarterly schedule.

Sometimes the central bank convenes an extraordinary meeting on rate matters, such as in February 2022 when Western sanctions were imposed. The rate rose to 20 percent briefly. Afterward the rate was reduced, but by July 21, 2023 a new cycle of increases began in response to high inflation and rising inflation expectations.

Since December 15, 2023 the base rate has stood at 16 percent. The regulator left it unchanged on February 16, and the next rate decision was anticipated for March 22. The regulator’s press release is published on its website at 13:30 Moscow time.

Alexander Abramov, who heads the laboratory for analysis of institutions and financial markets at the Institute of Applied Economic Research of the Presidential Academy, noted that the rate increase tends to affect prices with a delay of roughly three to six quarters.

“Less than two quarters have passed since the last rate hike, so the central bank will avoid moves that contradict the stated course,” Abramov said.

BCS World of Investments’ chief economist Ilya Fedorov does not expect a rate cut before July, pending clearer trends in service sectors, transport, tourism, and food inflation.

“The current inflation cycle is an internal phenomenon. High real rates are needed to combat inflation. There will be no rapid cuts; a 100 basis point reduction won’t happen until autumn. Initial steps will be gradual,” the economist noted.

What will happen to deposits?

Deposit rates typically follow the key rate. If the central bank raises the rate by one percentage point, deposit rates generally rise as well. Holding the key rate at 16 percent is not expected to drastically alter banking products. Deposit rates remain high, though the annual yields of 14-15 percent are usually available only for a short period—around three months. In some cases banks offer six- to seven-month terms at a similar level, while longer-term rates tend to be lower.

Vladimir Evstifeev, head of the analytical department at Bank Zenit, noted that current deposit rates are among the highest in the latest cycle of the central bank’s monetary policy.

Abramov advised those seeking the highest three-month rates to act quickly. He suggested that six-month deposits might fall slightly, while long-term options of nine months to a year or more are not expected to change much.

Fedorov indicated that deposit rates will ease gradually as the easing cycle begins, yet overall real profitability should stay high. He added that maintaining the key rate would likely sustain Russian savings, with demand leaning toward six‑month deposits as banks seek to attract funds ahead of potential rate cuts in the future. Longer-term products are expected to adjust more slowly, with banks offering the best conditions for short-term deposits.

What about loans?

Higher key rates raise borrowing costs for businesses and households. When the central bank tightens, loan rates tend to rise as banks protect themselves against higher funding costs. Banks may also preemptively lift rates in anticipation of policy moves. Even if the base rate remains unchanged, some adjustments to loan pricing can occur.

Abramov pointed out that consumer loan rates and mortgage rates are currently elevated. He cited typical ranges of around 13.5–14.5 percent for consumer loans and up to roughly 25 percent for some mortgages. He cautioned that with inflation around 7.4 percent, such levels are high, and those needing credit should consider long‑term options that align with anticipated rate reductions. For individuals eligible for social benefits, cautious, well‑considered decisions on mortgages may be prudent.

Konstantin Ordov, director of the Higher School of Finance at the Russian University of Economics GV Plekhanov, noted that consumer loan rates are unlikely to shift dramatically after the March 22 decision, though tighter bank requirements could trim credit availability. VTB forecasts expect a decline in loan costs no sooner than the second half of 2024 if the easing cycle begins.

What will happen to the ruble exchange rate?

A higher rate slows lending and reduces import demand, often supporting a stronger ruble. Current high rates on ruble deposits also attract savers to keep funds in rubles, supporting the currency. Still, the exchange rate is influenced more by external factors such as foreign earnings and import volumes for machinery and equipment.

Abramov hoped for ruble stability after the March 22 decision, but he warned the rate move might not have a major impact on the currency. He expected the ruble to hover around the 90–92 per dollar range in March, depending on external conditions.

What will prices do?

Recent data show a mild slowdown in Russia’s inflation, which provides some confidence that the central bank could begin a more decisive rate reduction in the second half of the year. Yet the present decision is seen as having only a moderate effect on the price level.

BitRiver analyst Vladislav Antonov disagreed, noting that inflation remains stubbornly high due to a tight labor market, logistical hurdles, rising housing and utility charges, and consumption taxes. He warned that a significant drop to 4 percent is unlikely before 2025–2026. In a climate of persistent inflationary pressure, he advocated for a cautious, steady policy that keeps rates elevated for longer.