Demand for consumer loans in Russia: How strong is the interest rate channel of monetary policy?

The booming retail trade and the above-target consumer prices inflation in 2023–2024 in Russia, amid tightening monetary policy stance, raise an issue of the strength of the monetary policy interest rate channel. The focus of our paper is the interest rate elasticity (given inflation expectations) of a household’s loan request probability. We argue that a household, rather than an individual consumer, is the appropriate unit of study. We use unique data on households’ loan applications obtained from the AllRussian survey of consumer finances , which contains information on more than 6,000 households in Russia. Actual loan applications cover the period of 2020–2022, and the survey also includes information on households’ borrowing intentions as of late spring–summer 2022. The interest rate channel of monetary policy, with regard to unsecured loans, although statistically significant and working in the right direction, does not appear to be economically significant from a microeconomic perspective. This suggests that the Bank of Russia, in relying on this channel for this type of credit, might have to increase the key rate significantly to cool down consumer demand and bring retail inflation to the target. We find that higher households’ inflation expectations positively correlate with the loan demand, thus, households’ inflation expectations do have real effect. Thus, anchoring inflation expectations is important for achieving macroeconomic stability. We empirically identify a set of Russian households’ characteristics that are key drivers of households’ requests for credit. Demographics is an important factor of the demand.