No surprises: what will happen to the key rate after the Central Bank meeting

Last December, the Bank of Russia kept the key rate at 21%, contrary to expert forecasts. One of the reasons for the decision was the cooling of lending activity. It was pointed out that the tight policy had finally started to bear fruit. The Central Bank should make a new decision on the key rate at the meeting on February 14. And according to experts' forecasts, we should not expect big changes. What will happen to the monetary policy - in the material "Izvestia".

How the Central Bank regulates the monetary policy

The key rate is one of the most important instruments of the Central Bank's monetary policy. It represents the interest rate at which banks borrow money from the regulator and place their deposits with it. Simply put, it is the cost of money for commercial banks, depending on which the latter set their interest rates for loans and deposits.

In this regard, the key rate has a direct impact on inflation. An increase in the rate is usually caused by the prices of goods and services rising too fast. It works as follows: banks increase the rates on their loans, making it unprofitable for citizens and businesses to borrow. As a result, the volume of purchases decreases, and the available free funds are placed in deposits at a favorable interest rate. The total turnover of money in the economy decreases, which leads to slower inflation. The downside of a tight MP, however, is a reduction in the rate of economic development.

When the situation with inflation stabilizes, the regulator usually switches to a cycle of lowering the key rate. Loan terms become more favorable, and deposits become less attractive. Individuals and entrepreneurs start spending more money, which leads to a natural growth of the economy.

What held back the growth of the key rate

The situation with lending was the reason for the decision on the key rate made at the regular meeting of the Central Bank's Board of Directors in December. Then the regulator kept it at 21% per annum, contrary to the expectations of most experts.

The Central Bank explained this situation by the fact that the tightening of monetary conditions turned out to be more significant than the October decision on the key rate. A significant increase in interest rates for final borrowers and cooling of lending activity made it possible to achieve such rigidity. As a result, the economy began to see prerequisites for the resumption of disinflation and the return of price growth to the target of 4% per annum.

Despite this, however, the balance of risks to price growth remained shifted towards pro-inflationary risks on the medium-term horizon. The main ones are the persistence of high inflation expectations, deviation of the Russian economy from the trajectory of balanced growth and deterioration of foreign trade conditions.

Disinflationary risks, in turn, are associated with a faster slowdown in credit growth and domestic demand under the influence of tighter monetary conditions, which may also have a negative impact on the economy.

Be that as it may, inflation in Russia remains high. From the data of Rosstat for the end of January - beginning of February of the current year it follows that annual inflation in Russia as of February 3 was at the level of 10.14%. Since the beginning of the year, price growth amounted to 1.30%.

The next meeting of the Central Bank, which will consider the level of the key rate, will be held on February 14. After the unexpected December decision of the regulator, experts are more cautious in their forecasts.

What do loans have to do with it

By the way, the tendency to slow down the pace of lending is confirmed by objective figures. According to the Bank of Russia, in December last year the total volume of loans of Russians decreased for the first time since May 2022. This means that citizens repaid more debts than they had accumulated during the month. The total amount of loans decreased by 192 billion rubles to 36.9 trillion. This situation was caused by the high key rate and quantitative restrictions on granting loans to borrowers with a high debt load. Another important factor is the lack of large-scale state support for mortgages.

- The slowdown in lending in Russia can be considered a positive trend, because against this background inflation is expected to cool down in the country. For this purpose, the Central Bank and tightened the monetary policy and the conditions for granting loans, - emphasized analyst Freedom Finance Global Vladimir Chernov.

He predicts that the trend of slowing down lending will be fixed until at least the second half of 2025.

What will happen to the key rate

Forecasts on the development of the situation with the key rate are given not only by specialized analysts, but also by deputies of the State Duma. The head of the State Duma Committee on Financial Market Anatoly Aksakov, in particular, believes that the Central Bank will not tighten the CBR at the next meeting.

High interest rates, according to the parliamentarian, have already allowed to slow down inflation in Russia. "Therefore, I believe that at the next meeting the Central Bank will not raise the key rate, based on the trend," the MP is convinced.

The most probable decision of the Central Bank will be to keep the key rate at 21%, Ruslan Pichugin, an independent expert in the field of private investments, agreed in a conversation with Izvestia .

- Despite some positive shifts in the monetary policy, the regulator is likely to need additional time to analyze the current trends in lending and inflation," he believes.

The wait-and-see attitude of the Bank of Russia, according to the expert, will remain at least until March. From the middle of 2025, the key rate may start to decline, as a result of which it will probably fall to 18-19% by the end of the year.