Anticipated Bank of Russia Reduction: Key Rate Projected to Dip to 18% on July 25th
Bank of Russia Cuts Key Interest Rate Amid Economic Slowdown and Inflation Decline
In a move aimed at boosting economic growth, the Bank of Russia reduced its key interest rate by 200 basis points from 20% to 18% per annum on July 25, 2025 [1][2][4]. This decision marks the second consecutive rate cut and brings the rate to a 9-month low.
The central bank emphasized that the Russian economy is returning to a balanced growth path, with domestic demand growth slowing and inflation falling. The Bank of Russia expects inflation to decline to 6.0–7.0% in 2025, return to its 4% target in 2026, and remain stable thereafter [1][2][4].
The rate cut is expected to have several impacts on the Russian economy:
- Lower borrowing costs: The cut in the key interest rate reduces the cost of loans for businesses and consumers, potentially supporting investment and consumption.
- Slower inflation pressures: The rate cut follows evidence of slowing inflation from over 9% to expected single-digit levels, helping stabilize prices further.
- Balanced economic growth: By easing rates gradually, the bank aims to support a stable return to growth without overheating the economy or reigniting inflation.
- Monetary policy tightness to continue: The Bank of Russia signals that despite easing, policy will remain relatively tight to contain inflationary risks in the medium term [1][2][4].
Lending growth is expected to be 6-8% by 2025, lower than the Central Bank's forecast of 6-11%. The decrease in the maximum average rate has occurred faster than the key rate trajectory, decreasing by 4.37 percentage points in six months while the central bank's key rate has only decreased by 1 percentage point [1][2][4].
Top managers of the Central Bank of Russia have repeatedly stated that they are ready to ease monetary policy. Industry statistics show moderate growth in the second quarter, but July figures are concerning [1][2][4]. Banks anticipating further decreases in the key rate have rapidly lowered deposit rates.
Deputy Governor of the Bank of Russia Alexei Zabotkin forecast that the key rate may be cut by more than 1 percentage point if inflation approaches its target (4%) [1][2][4]. Konstantin Selianin predicts that the key rate could drop to 15% by the end of 2025 [1][2][4].
The Bank of Russia increasingly believes that a strong ruble is due to its high key rate. However, it does not mention this, but currency forecasts should be considered for inflation forecasts [1][2][4]. Adviser to the Chairman of the Bank of Russia Kirill Tremasov suggested that a reduction of at least 1 percentage point in the key rate will be considered at the July meeting [1][2][4].
The Bank of Russia will announce the key rate on Friday, July 25. Despite the rate cut, the regulator affirms it will maintain tight monetary policy conditions as necessary to guide inflation back to the target, forecasting an average key rate of 18.8–19.6% for 2025 and 12.0–13.0% for 2026, indicating that monetary tightening will persist over a longer period [1][2][4].
[1] Bank of Russia Press Release [2] The Moscow Times Article [4] Bloomberg Article
Businesses may experience lower borrowing costs due to the Bank of Russia's reduction of its key interest rate, which could potentially support investment and consumption. The Russian ministry of finance may benefit from this reduction as well, given that government debt is influenced by interest rates.
