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Russian Central Bank maintains flexibility in setting key interest rate.

Russian Central Bank Mulls Over Increasing Key Interest Rate in 2021, Yet Probability Softens. According to Elvira Nabiullina, the central bank's leader, a strengthening ruble plays a significant role in easing inflationary pressures.

Russian Central Bank maintains flexibility in setting key interest rate.

Catch Up: Lower Key Rate Hike Chances for the Russian Central Bank, According to Elvira Nabiullina

It looks like the Russian Central Bank might not be raising their key rate this year after all. As the head of the regulator, Elvira Nabiullina, shared, the strengthening ruble is helping to ease inflationary pressure.

Get this straight: Both a rate cut and a rate hike are still on the table, but the odds of a rate hike have definitely taken a nose-dive compared to earlier meetings.

"Take a gander at our key rate forecast for the year, and you'll see that lowering rates and raising them are both possibilities," Nabiullina elaborated. "But, compared to our last get-together with the Board of Directors, we think the odds of raising rates has decreased."

She further explained that even if inflation expectations drop and rates are lowered, it'll still be necessary to keep a tight grip on monetary conditions.

Nabiullina pointed out that if the ruble's strengthening sticks around, it could pave the way for an earlier rate cut. "A strong ruble ain't a no-no, but rather assists in reining in inflation. And if it proves durable, it'll kick an earlier rate cut into full swing," she said.

Today, the Central Bank left their key rate at 21% for the fourth time in a row. Their next powwow with the Bank of Russia's Board of Directors, where the key rate discussion will heat up again, is slated for June 6, 2025.

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Background Check:

The probability of a key rate hike by the Russian Central Bank has indeed plummeted in recent months due to shifting economic indicators and policy assessments:

1. Declining Hike Chances: Governor Elvira Nabiullina stated in late April 2025 that "the prospects of raising key rates have shrunk" compared to earlier evaluations[4]. This remark followed the Bank's March decision to hold rates at 21% and subsequent hints of easing inflationary pressures[1][3].

2. Key Influencing Factors: - Moderating Inflation: While inflation is still above the mark, expectations have receded for both households and businesses, with breakeven inflation metrics exhibiting improvements[1]. The Bank anticipates annual inflation will start dropping in May 2025[4]. - Slowing Economy: Growth hiccuped in Q1 2025 compared to late 2024, with domestic demand flagging[1]. Tight credit conditions have dampened lending and boosted household savings[3]. - Easing Labor Shortages: Early signs of easing labor shortages are lessening wage growth pressures[3]. - Monetary Policy Efficiency: The existing 21% rate is seen as sufficiently snug to bring inflation down to target by 2026, diminishing the urgency for further hikes[1][4]. Now, the Bank is focusing more on keeping tight monetary conditions and with markets expecting rate cuts rather than hikes [2][3][4].

Elvira Nabiullina, the head of the Russian Central Bank, revealed that the strengthening ruble has helped to ease inflationary pressure, but both a rate cut and a rate hike are still possibilities for this year. She also noted that, compared to their last meeting, the odds of raising rates have decreased. Nabiullina added that if the ruble's strengthening proves durable, it could pave the way for an earlier rate cut. Despite the lower chances of a rate hike, the Bank will keep a tight grip on monetary conditions, especially as they focus on easing inflation pressures and addressing labor shortages.

The Russian Central Bank is considering increasing its key rate this year, but the probability is progressively diminishing. Central bank leader Elvira Nabiullina stated that the ruble's strengthening is aiding in alleviating inflationary stress.

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