• Russian interest rates on deposits and loans have risen faster than its central bank's key rate.
• A central-bank official said lending might have slowed too quickly in the battle to lower inflation.
• Russia's central bank has kept its interest rate at 21% to avoid excessive cooling in its economy.

Russia's central bank has been hiking rates consistently in the second half of this year in an attempt to cool high inflation — but it may be running ahead of the curve.

Bank lending has slowed, but there's a risk that it's "faster than necessary" in the fight to bring down inflation to Russia's target rate, a central-bank official told Interfax on Tuesday.

Andrey Gangan, the director of the Central Bank of Russia's Monetary Policy Department, told the news agency that bank interest rates on deposits and loans were rising faster than the central bank's benchmark rate, slowing lending activity.

The development prompted the central bank to keep its benchmark interest rate at 21% on Friday. Analysts polled by Reuters had expected Russia's central bank to hike its key rate to 23%.

"Throughout December, we received increasing confirmation of tighter monetary conditions, culminating in Friday's decision," Gangan said.

Citing official data, Interfax reported that corporate bank lending grew 0.8% in November, down from 2.3% in October.

Lenders are planning to expand their loan portfolios at a lower level next year, Gangan said.

Putin called for a 'balanced' decision on interest rates

Gangan's comments followed speculation that Russia's central bank had been under pressure from President Vladimir Putin and the business community to hold back on rate hikes.

A day before the central bank's meeting, Putin called for a "balanced" decision about the interest rate.

Russia's top central banker, Elvira Nabiullina, said at a press conference following Friday's interest-rate announcement that she was worried about "excessive cooling" in the country's overheated economy.

Despite the slowdown in bank lending that prompted Russia's central bank to keep rates steady, inflation remains high, reflecting challenges in the country's sanctions-hit economy.

Russia's inflation rate hovered at about 8% in the year to November, compared with the target rate of about 4%, according to government figures.

Gangan told Interfax that full-year inflation was expected to be about 9.6% to 9.8%. Price raises are expected to peak in April 2025 before falling.

"The current price growth we are observing is the result of factors that have accumulated over most of this year," he said.

But the central bank still needs to keep rates steady this time so that the slowdown in bank lending — which leads to economic cooling — would not be "faster than necessary for bringing inflation back to the target," Gangan said.

• The Federal Reserve is expected to cut interest rates this week by 25 basis points.
• Inflation has ticked back up in recent months, and economists think the job market is still robust.
• The outlook for 2025 is more uncertain while the Fed waits to see how Trump will impact the economy.

The final interest-rate decision of the year is coming this week, and it's likely to give Americans some more financial relief.

On Wednesday, the Federal Open Market Committee is expected to announce another interest-rate cut. As of Monday afternoon, CME FedWatch, which estimates interest-rate changes based on market predictions, forecasts a close to 100% chance the Federal Reserve will cut rates by 25 basis points.

Data out last week showed overall inflation has sped up. The consumer price index's year-over-year growth rate rose from 2.4% in September to 2.6% in October before climbing to 2.7% in November. Core CPI, which excludes volatile food and energy prices, has been holding steady, with a year-over-year change of 3.3% from September to November.

Jerome Powell, chair of the Fed, said at The New York Times' DealBook Conference on December 4 that "we're in a very good place with the economy," but inflation is still not quite where the central bank wants it to be.

"The labor market is better, and the downside risks appear to be less in the labor market, growth is definitely stronger than we thought, and inflation is coming a little higher," Powell said. "So the good news is that we can afford to be a little more cautious as we try to find neutral."

Slower job growth and higher unemployment may add fuel to the argument for continuing to cut, while a tighter-than-expected labor market could lead the central bank to pause while waiting to see if wage growth and inflation speed up.

"I don't think there's that much cause for concern in the labor market data that would lead to them suspending their plan to cut," Julia Pollak, the chief economist at ZipRecruiter, told Business Insider.

Pollak said the quits rate, the latest reading of which was 2.1% in October, is "consistent with a non-inflationary labor market" and that "wage growth at 4% over the year should be sustainable given current productivity growth." Cory Stahle, an economist at the Indeed Hiring Lab, said the US economy continues to add jobs above population growth and has low unemployment.

The unemployment rate increased from 4.1% to 4.2% in November. The three-month average job gain in November was around 173,000, lower than early 2024 but still strong.

"There are still many reasons to be optimistic about the labor market, but also you don't, as a Federal Reserve policymaker, you don't want to wait until things start looking bad to react to that because by then, you might be too late," Stahle said.

The interest rate outlook for 2025 is a bit more uncertain. President-elect Donald Trump has already posed broad tariff threats on key trading partners with the US, including China, Canada, and Mexico. If he implements those tariffs, consumers would likely face higher prices on impacted goods. The Fed could respond to inflationary trade pressures by once again raising interest rates.

However, Powell has so far declined to comment on any policy changes the Fed would consider in response to Trump's tariff threats, saying during the DealBook conference that too much about what Trump might do with tariffs is unknown.

"We can't really start making policy on that at this time. That is something that lies well into the future. We have to let this play out," Powell said, emphasizing that the Fed is making decisions about what's happening in the economy now and not six months from now.

Still, some economists expect 2025 to be another strong year for the economy. Gregory Daco, the chief economist at EY, said that the US "remains on a solid growth trajectory supported by healthy employment and income growth, robust consumer spending, and strong productivity momentum that is helping tame inflationary pressures."

"We expect these positive dynamics will carry into 2025 allowing the Fed to pursue gradual, but cautious, policy recalibration," Daco said in written commentary.