Moscow: The Russian central bank has categorically dismissed circulating rumours about a potential freeze on retail deposits. This reassurance comes amidst a surge in deposit activity driven by escalating interest rates tied to the regulator’s benchmark rate.
In 2024, Russia’s benchmark interest rate hit 21%, the highest level since the early years of President Vladimir Putin’s leadership. The central bank’s measures aimed to tackle inflation fueled by government spending and rising wages. Banks responded by offering short-term deposits with interest rates as high as 30%, sparking a deposit frenzy as customers shifted funds between banks to secure the best returns. This trend has also raised fears of a looming savings bubble.
According to official estimates, retail deposits have grown by one-third in 2024, prompting widespread public concern about the possibility of a deposit freeze. In response, the central bank addressed these fears directly, stating on its Telegram channel, “This idea is absurd. Besides being a gross violation of the rights of citizens and companies to manage their assets, such a step would undermine the foundations of the banking system and the financial stability of the country.”
Rising Interest Income and Sectoral Shifts
VTB Bank reported that Russian citizens earned approximately 7 trillion roubles ($68 billion) in interest on their deposits in 2024. This unprecedented deposit activity has drawn significant capital away from other investment avenues, including the stock market and real estate sector.
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Public fears are rooted in historical financial crises. Many Russians lost their savings due to hyperinflation following the Soviet Union’s collapse in 1991 and during the 1998 Russian financial crisis. However, the country’s banking system demonstrated resilience during the 2008-2009 global financial crisis and has so far avoided significant instability despite Western financial sanctions imposed since 2014.
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Sanctions and Financial Stability
Following Russia’s military action in Ukraine in 2022, all major Russian banks came under Western sanctions. Despite this, the nation’s banking system has avoided widespread bank runs and bankruptcies. Addressing the implications of a potential deposit freeze, the central bank warned, “If deposits are frozen, people will lose trust in banks and the financial system as a whole for a long time.” Such an action, the regulator explained, would exacerbate inflation and undermine the effectiveness of the key interest rate.
