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(Bloomberg) -- Russia’s central bank is poised to hold borrowing costs at a record high after policymakers switched their focus from an uncompromising fight against inflation to avoiding an excessive cooling in the war economy.

The Bank of Russia will keep the key rate at 21% on Friday for a second meeting, according to all economists surveyed by Bloomberg.

After hiking 5 percentage points last year, Governor Elvira Nabiullina unexpectedly slammed on the brakes in December, pointing to a sharp slowdown in lending. President Vladimir Putin had already acknowledged business concerns that the fight against inflation risked destroying an economy hit by sanctions over the invasion of Ukraine.

The December meeting marked a shift “to a more balanced approach to inflation targeting with account of the accompanying costs,” said Oleg Kuzmin, an economist at Renaissance Capital in Moscow. “Neither inflation nor still quite robust economic activity should prompt the Bank of Russia to further tighten monetary policy,” he said.

The key rate decision is announced at 1:30 p.m. in Moscow, with the governor due to give a news briefing at 3 p.m.

Nabiullina said in December that the bank would likely choose between another hold or an increase at the first rate meeting of this year, highlighting that while it was necessary to reduce overheating in the economy, “hypothermia” had to be avoided. But since then corporate and retail lending have continued to slow, according to central bank data.

Putin last month voiced concerns that the slowdown in lending could pose risks to long-term growth and called for such imbalances to be avoided. Although gross domestic product increased 4.1% in 2024, economists polled by Bloomberg expect growth to slow to 1.5% in 2025.

Annual price growth reached 9.52% in December, more than double the central bank’s target, with labor shortages propelling wages upward and production unable to keep pace with increasing demand. Data for January released later on Friday is expected to show an acceleration to 9.9%.

What Bloomberg Economics Says...

“The Bank of Russia is not out of the woods with regards to inflation yet, but the ruble gaining against the dollar gives the central bank space to keep the policy rate at 21% and markets confidence that the policy rate has peaked.

Looking forward, provided the country’s oil revenue is stable, we expect the Bank of Russia to start cutting between April and July and bring the policy rate to 16% by the end of 2025.”

Alex Isakov, Russia Economist

The ruble has appreciated 10% this year against the greenback, with a jump in the central bank’s exchange rate after Putin and President Donald Trump agreed to talks on resolving the war in Ukraine during a phone call Wednesday.

While the economy gained new momentum at the end of last year as an increase in revenue in December allowed the government to spend more than ever, Bank of Russia analysts said Feb. 4 that they saw no signs yet of a sustained slowdown in price growth. They stressed the importance not only of tight monetary conditions but also of complying with the 2025 budget law to return to low inflation.

However, state spending continues to rise, with January’s budget deficit exceeding the full-year target. The government’s huge financing of the economy potentially offsets the disinflationary effect of the slowdown in lending.

There’s “a serious risk” of the government’s annual expenditure being revised up this year, according to analysts at Alfa-Bank.

Still, it was important that Trump and Putin held their call before the central bank meeting, which holds out the possibility of the first signals of lower rates as soon as March, according to Iskander Lutsko, head of portfolio management at Istar Capital.

“The improvement in geopolitics may be a factor in favor of a softer tone while holding the rate,” he said. “Increased chances of sanctions and penalties being lifted are a positive factor for inflation.”