Interest rates have been decreased by the Central Bank to 18%
The Bank of Russia Lowers Key Interest Rate for Second Consecutive Time
The Bank of Russia has announced a second consecutive cut to the key interest rate, marking a significant shift in monetary policy after nearly three years of increases. The first rate cut, which occurred on July 21, was a smaller adjustment of 1 percentage point (p.p).
Before the first cut, the key rate had been at 21% since October 2024. However, the Bank of Russia expects the average key rate to be in the range of 16.3-18.0% from July 28 to the end of 2025, and to decline to about 12.0% to 13.0% in 2026. This prolonged period of tight monetary policy is aimed at bringing inflation back to the 4% target by 2026.
Regarding inflation, the forecast indicates that annual inflation will fall to 6.0–7.0% in 2025 and further decline to the Bank's target of around 4.0% in 2026. The Bank of Russia predicts that inflation will decrease to 6-7% by the end of 2025.
Domestic demand growth is slowing, and the economy is expected to continue returning to a balanced growth trajectory. The Bank of Russia emphasizes that maintaining tight monetary conditions is necessary to achieve the inflation target in 2026.
The Bank of Russia's medium-term forecast updates expect inflationary pressure to ease faster than previously forecast. Future decisions on the key rate will depend on the sustainability of the inflation slowdown and the dynamics of inflation expectations.
The next rate-setting meeting is scheduled for September 12. As of July 21, annual inflation stood at 9.2%, a decrease from the previous levels. The Bank of Russia has made it clear that it will remain vigilant in its efforts to control inflation and maintain a stable economic environment.
[1] Bank of Russia (2023). Monetary Policy Decision. Retrieved from https://www.cbr.ru/reference/monpol/
[2] Bank of Russia (2023). Inflation Report. Retrieved from https://www.cbr.ru/publications/inflationreport/
[3] Bank of Russia (2023). Monetary Policy Meeting Minutes. Retrieved from https://www.cbr.ru/reference/monpolmin/
In light of the Bank of Russia's decisions, a second reduction in the key interest rate indicates a shift towards more lenient monetary policies for the finance sector. As the Bank expects the average key rate to remain around 16.3-18.0% until the end of 2025, this rate adjustment might signal a possible easing of tight business conditions in the following years.
