Russia keeps key rate on hold, braces for global turbulence

By Elena Fabrichnaya and Gleb Bryanski

MOSCOW (Reuters) -The Russian central bank maintained its key interest rate at 21% on Friday, with inflation starting to decline but new risks facing the Russian economy because of global economic turbulence triggered by U.S. trade tariffs.

Russia has not suffered directly from high import taxes on many countries announced by U.S. President Donald Trump but is now bracing for a protracted period of lower oil prices - its main export - and declining budget revenues.

"A further decrease in the growth rate of the global economy and oil prices in case of escalating trade tensions may have proinflationary effects through the rouble exchange rate dynamics," the central bank said in a statement.

Central bank governor Elvira Nabiullina, who had earlier called the trade wars "a tectonic shift", said the changes happening in the global economy were now a key inflationary factor.

"The main channel of influence of these tariff wars on the Russian economy is a decrease in prices for the main goods of our exports," Nabiullina said.

Lower oil prices mean less foreign currency revenue for Russian oil exporters, which they convert into roubles at home to pay taxes. It will reduce the supply of foreign currency and make the rouble weaker, pushing up domestic prices.

INFLATION PASSED PEAK

The central bank is keeping the key rate at the highest level since the early 2000s as it struggles to combat inflation. The rouble, which has surged by 37% against the dollar this year, has helped this effort by making imported goods cheaper.

"Current inflationary pressures, including underlying ones, continue to decline, although remaining high," the regulator said. It maintained its 2025 inflation forecast at 7.0–8.0%, predicting inflation will return to the target of 4.0% in 2026.

Nabiullina said inflation had passed its peak in the fourth quarter of 2024 but the transition to a sustainable decline in annual inflation is expected to occur in May, with a spike in July linked to a planned rise in utilities tariffs.

She also said that the rouble strengthening is now seen as more sustainable than before, but its exchange rate to the U.S. dollar was still under the influence of news about Russia-U.S. talks on a peaceful settlement to the conflict in Ukraine.

The central bank also left some room for further rate hikes, saying it expected an average key rate in the range of 19.5–21.5% in 2025, compared with the previous estimate of 19-22%.

Nabiullina welcomed the Finance Ministry's idea to save more oil revenues in a reserve fund and create a safety cushion during a period of global turbulence, saying such a policy would also help bring inflation rates down.

PREDICTABLE CONDITIONS

The central bank drew strong criticism from business leaders over its interest rate policy in recent months but Nabiullina, who has the backing of Russian President Vladimir Putin, is expected to keep her job until the end of her term in 2027.

The decision to keep the rate on hold was in line with the results of a Reuters poll of 25 analysts.

"This decision means that the central bank is creating predictable conditions within the economy in order to reduce the uncertainty currently associated with trade wars and instability in oil prices," said Alfa Bank's Natalya Orlova.

The central bank noted that economic activity slowed in the first quarter of 2025, compared with the fourth quarter of 2024. It said the share of enterprises experiencing labour shortages was also declining.

The central bank maintained the 2025 growth forecast at 1-2%, below the government's forecast of 2.5%. It said that it would hold its next rate-setting meeting on June 6.

(Reporting by Moscow newsroom, writing Gleb Bryanski; editing by Mark Trevelyan, William Maclean and Mark Heinrich)