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The central bank’s push for tighter policy rests on persistent inflationary pressure in Russia and the dominance of pro inflation risks such as a tight labor market, soft budget policy, and uncertainty around the ruble. Inflation expectations among the population have risen, reinforcing the case for continued restraint.

The Bank of Russia has reiterated its commitment to restoring inflation to the 4 percent target by the end of 2024.

“Therefore, the central bank must maintain a firm stance”, noted Mikhail Vasiliev, chief analyst at Sovcombank. “Interest rate decisions influence inflation with a lag of about three to six quarters. By raising the key rate, the bank aims to cool still-high lending costs and curb excess demand, helping to slow price growth and return inflation to target within the planned timeline.”

Vasiliev added that a return to 4 percent inflation before 2025 appears unlikely. “We expect inflation to reach 7.8 percent by year-end, rise to 8.5 percent by mid-next year, and then ease to around 6 percent by the end of 2024. The risks are increasingly skewed toward higher inflation”, the analyst explained.

What is the outlook for the ruble exchange rate?

Vasiliev believes the December 15 decision will provide a moderately positive impulse for the ruble in the coming weeks.

“Overall, the impact of the rate on the ruble has become more indirect due to the absence of non-residents, Western sanctions, and capital movement restrictions”, the analyst said. The ruble benefited from a dip in credit activity and a shift toward strong ruble instruments, supporting a rebound after a period of weakness, according to Mikhail Zeltser, a stock market expert at BCS World of Investments.

“The tighter policy supported by exporter currency repatriation increased the overall foreign exchange supply. The ruble stabilized as expected, with the benchmark around ninety rubles per dollar after the October meeting, and the ruble recovering from its late-October decline of more than 10 percent”, Zeltser noted. He emphasized that the harsh stance is likely to remain in place for some time, and the next few months should not bring large devaluation waves. Market moves will mostly reflect typical stock market volatility.

He also pointed out that a range around ninety rubles per dollar remains a workable level for real-sector currency operations and helps the budget outlook for the coming year.

Vasiliev predicts the dollar may climb to roughly 87–92 rubles by year-end, with the euro near 95–101 rubles and the yuan around 12.2–12.9 rubles. In the first quarter, the ruble could strengthen toward about 85 rubles per dollar, 93 per euro, and 12 per yuan amid seasonal shifts in FX demand.

What about deposit interest rates?

Vasiliev expects deposit and loan rates to move in tandem with the rate increase in the weeks ahead. Forecasts suggest deposit yields could rise to the mid-teens, with ranges around 15–17 percent. Russians may find higher returns on savings, while inflation remains a key watchpoint.

Inflation is projected to peak around 8.5 percent in the middle of next year and ease to about 6 percent by year-end. Real returns on investments are expected to stay solid for the year, according to Vasiliev.

Compare, a market service, noted that banks typically push up loan and deposit rates quickly, often within a few days. For savers considering new deposits, a brief waiting period of about a week could secure better terms, the service added. Banks have already raised rates, with Sberbank and VTB signaling further adjustments if the policy rate rises again.

One lender reported new deposit rates up to 16.5 percent per annum, while another bank has lifted savings rates to 16 percent. The commentary underscored ongoing volatility in offers and the potential for further adjustments as the policy trajectory unfolds.

What about loans?

Industry analysts expect loan costs to rise by roughly 0.5–1 percentage point. The mortgage market could see rates approaching 20–21 percent in the near term, reflecting tighter credit conditions and higher funding costs.

Rising credit prices are projected to dampen consumer and investment demand, including import demand, and to reduce demand for foreign currency. At the same time, higher deposit rates should attract ruble funding, supporting demand for the currency.

Experts warn that the monetary tightening could endure into 2024 and potentially into 2025, keeping double-digit rates in play for an extended period. While some lenders may nudge rates higher, others could adjust more gradually in response to nationwide policy signals.

Short-term deposits are appealing in the near term, but borrowers should consider timing and necessity. As the policy path continues, lenders may revise terms, and proactive planning will help minimize cost of credit during this cycle.

What about the key rate going forward?

The Bank of Russia has given a neutral signal about future actions, contingent on incoming data. In the base scenario, inflation is expected to slow gradually as the ruble stabilizes and monetary conditions remain tight.

At the upcoming meeting on February 16, the central bank is anticipated to hold the rate at 16 percent. In the baseline view, 16 percent could mark the peak for this cycle, with a potential rate cut only in the middle of next year as inflation cools. By the end of 2024, the projection is for inflation around 6 percent and the key rate near 12 percent, according to Vasiliev.

In a risk scenario, the rate could rise to 17 percent at the February meeting if inflation does not retreat over the next two months.