Demand for Consumer Loans in Russia: How Strong is the Interest Rate Channel of Monetary Policy?

<p dir="ltr">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, not an individual consumer, is the right object for the study. We use unique data on households’ loan applications obtained from the All-Russian Survey of Consumer Finances, which contains information on more than 6000 households in Russia. Actual loan applications cover period of 2020-2022, the survey also contain information on households’ borrowing intentions as of late spring-summer 2022.</p><p dir="ltr">The interest rate channel of monetary policy with regard to unsecured loans although being statistically significant and working in the right direction, seems not to be economically important. It means that Bank of Russia in its relying on this channel might have to increase the key rate significantly to cool down the consumer demand and bring retail inflation to the target. We find that higher household’s inflation expectations positively correlate with its loan demand.</p><p dir="ltr">We empirically identify a set of Russian households’ characteristics that are key drivers for households’ requests for credit. Demographics is an important factor of the demand.</p>