elvira nabiullina : review of recent inflation developments in russia and economic outlook statement by ms elvira nabiullina, governor of the bank of russia, in the follow - up to the board of directors meeting, moscow, 11 june 2021. * * * today, we have decided to raise the key rate by 50 basis points to 5. 50 % per annum. as inflationary pressure has notably strengthened, we need to ensure price stability consistently and actively. we see the necessity of further increases in the key rate at upcoming meetings. let me dwell on the factors behind the today ’ s decision. first. the russian economy will return to its pre - crisis level during this quarter. its h1 growth exceeds the pace we factored in in the april forecast. leaving out restrictions on oil production and international passenger travel, it is clear that the output in most key industries has not only bounced back to the end - 2019 level but outstripped it. russia is among the group of countries that will be the first to reach the pre - pandemic level of output. it is typical of the current situation in many sectors of the economy that growth in demand is outpacing the potential to expand supply. companies need time to roll out new capacities, and also hire and train staff. demand is growing both domestically and abroad. the activation of external demand is underpinned by a faster - than - previously - anticipated rebound in the global economy and trade. the main reasons are abating epidemic risks, given vaccination rates, and extremely loose monetary and fiscal policies in major economies. the aggregate demand is also affected by the elevated growth rates of raw materials and component inventories. firstly, companies make up for the drop in inventories incurred during the pandemic and as a result of disrupted logistical chains. secondly, in light of the last year ’ s experience companies are seeking to accumulate more inventories to insure against possible disruptions in supplies, as well as further price increases. these processes concern a broad range of production chains rather than a narrow group of goods. the structure of demand is also changing, as a result of changes in people ’ s way of life due to the pandemic. neither the sustainability nor the duration of this process is clear so far. yet, it evidently creates bottlenecks on the supply side. for instance, massive work and study from home spurred a sharp increase in the need for telecommunications followed by a considerable increase in the demand for

curbing inflation expectations and not allowing inflationary spiral to exacerbate. according to our estimates, annual inflation is expected to be higher than we forecast in april but lower than its current level. due to the high base effect in the first half of this year annual inflation will return to the target only in the second half next year. third. monetary conditions remain accommodative. interest rates on loans and deposits are low as compared to current and expected inflation. our decisions to raise the key rate in march and april have not yet been fully reflected in banks ’ interest rates. banks ’ lending and deposit rates are closely connected with yields on government bonds, ofzs. ofzs are risk - free ruble assets for banks and the pricing of all other ruble products of banks is pegged to them. ofz yields with various maturities change together with the key rate, though to a different extent. the key rate impacts to the most extent the yields on short - term ofzs, with maturities of up to two - three years. these yields have increased significantly over the past two months. they will impact the cost of short - term loans and also deposit rates, which have already started rising. meanwhile, yields on long - term ofzs are largely determined by long - term inflation expectations, the assessment of the macroeconomic policy stability, and external environment. the cost of long - term financing of investment projects as well as mortgage loan rates depend precisely on the yields on long - term ofzs. pursuing monetary policy to stabilise inflation and raising the key rate to achieve this, the bank of russia curbs growth in long - term interest rates in the economy. this quarter experience is a good illustration of the above. despite the increase in the key rate on three occasions since last march for a total of 125 basis points, the yields of long - term ofzs are currently on the same level as in late march. as far as the pace of lending growth is concerned, it remains high both in corporate and particularly retail segments. thus, mortgages are rising by more than 25 % year - on - year. in addition, retail loans are heating consumer demand. we are also concerned by the fact that lending is growing due to loans to borrowers with a high debt burden. therefore, we resume prepandemic macroprudential add - ons on unsecured loans from 1 july and on mortgage loans with a low down payment