Record High Deposit Rates in Russia
The average maximum interest rate on ruble deposits in Russia's ten largest banks has surged to 22.08% per annum, marking a historic peak. This increase, reported by the Central Bank on December 17, reflects a significant rise from approximately 14% at the beginning of December 2023. Over the past year, Russian financial institutions have raised deposit rates by more than 50%, largely in response to the Central Bank's monetary policy adjustments.
Experts attribute this trend to the Central Bank's aggressive stance on interest rates, which has seen the key rate rise from 7.5% to 21% within a year. The Central Bank's strategy aims to combat inflation, which currently exceeds the target rate of 4%, standing at around 9.3%. As a result, banks have increased deposit yields, with some institutions offering rates as high as 30% per annum.
According to Alexander Shneiderman from Alfa-Forex, the rising yields indicate expectations of further increases in the key rate, anticipated at the Central Bank's upcoming meeting on December 20. VTB CEO Andrei Kostin also predicts that rates could reach 23% and remain elevated throughout the next year. This tightening of monetary policy has made loans more expensive, leading to decreased borrowing and increased savings among the population.
Impact on Savings and Economic Activity
The surge in deposit rates has prompted a notable increase in the volume of savings held by Russians in banks. Since the start of 2024, deposits have risen by 7.4 trillion rubles, totaling 52.9 trillion rubles by November. Short-term deposits, particularly those with durations of three to six months, have become increasingly popular as individuals seek to protect their savings from inflation.
The Central Bank emphasizes that deposits are currently the safest and most effective means of saving, with state insurance covering amounts up to 1.4 million rubles. With deposit rates outpacing inflation by two to three times, experts suggest that individuals consider long-term deposits to lock in high rates before potential decreases in the key rate, which may begin in 2025.
In summary, the current financial landscape in Russia is characterized by unprecedented deposit rates, driven by a proactive monetary policy aimed at curbing inflation. As the economy adjusts, the trend towards higher savings rates reflects a broader shift in consumer behavior amidst rising economic pressures.
