The Central Bank of the Russian Federation announced the transition through the peak of overheating of the economy in the fourth quarter of 2024

The peak of the overheating of the Russian economy was expected to take place in the fourth quarter of 2024. This was announced on May 12 by the press service of the Central Bank of the Russian Federation.

"We can say with more confidence that the peak of the overheating of the economy was passed in 4Q24, and in 1Q25 the positive output gap began to decrease," says the summary of the key rate discussion on the website of the Central Bank of Russia.

It clarifies that this is evidenced by a decrease in the current inflationary pressure, a gradual cooling of domestic demand, as well as signs of a slight decrease in labor market tensions. In particular, it is noted that the corresponding result follows from estimates of the output gap, taking into account updated data on gross domestic product (GDP) over the past year.

According to the Central Bank, overheating in the Russian economy remains significant at the moment.

In addition, the summary notes that at the April meeting, the Board of Directors of the Bank of Russia discussed two options for a key rate signal — neutral and moderately tight. It is noted that the majority of participants considered it possible to switch to a neutral signal, which implies both maintaining and changing the key rate.

At the same time, it is clarified that the probability of an increase in the key rate remains, however, compared with March, it has decreased.

Three steps back: the market expects the key rate to decrease to only 19% by the end of 2025

When will the Central Bank start reducing it and why will it do it gradually

On April 25, the Board of Directors of the Central Bank of the Russian Federation decided to keep the key rate at 21% per annum.

The Chairman of the Bank of Russia, Elvira Nabiullina, said on the same day that maintaining the key rate for 2025 in the range of 19.5–21.5% means that monetary policy can be both softened and strengthened. However, according to her, the first option is most likely against the background of a steady strengthening of the ruble since March.