Russian Central Bank lowers key rate for the first time in almost three years
The Latest on Monetary Policy
The Central Bank (CB) last decided to soften monetary policy back in September 2022, reducing the interest rate from 8% to 7.5%. After that, the CB only made decisions to raise the rate or keep it constant at the same level.
At today's meeting, the Bank of Russia pointed out that the current inflationary pressure, including sustainable pressure, continues to decrease. Moreover, despite the fact that domestic demand is still ahead of the availability to expand the supply of goods and services, the Russian economy is slowly returning to a balanced growth trajectory.
However, the CB promised to maintain the rigidity of monetary and credit conditions, which will be necessary for inflation to return to its target in 2026. In the Bank of Russia, they explained that this means a prolonged period of tight monetary policy.
Future decisions regarding the key rate will be made based on the speed and sustainability of inflation reduction and inflation expectations.
According to the Bank of Russia's forecast, taking into account the current monetary policy, annual inflation will return to 4.0% in 2026 and will remain at the target in the long term.
The next meeting of the Board of Directors of the CB, during which the question of the level of the key rate will be considered, is scheduled for July 25 of this year.
As a reminder, on April 25, the CB decided to maintain the key rate at 21% annual, emphasizing the prolonged period of tight (monetary policy).
As "Монокль" previously wrote, the chief economist of T-Bank, Sofia Donets, speculated that by the end of this year, the key rate could fall to 15%. At the same time, she noted that the current high rate of the regulator is not normal for the country.
Interestingly, economic experts have predicted that the actual monetary policy trajectory would not allow for a decrease in the key rate to 15% by the end of 2022. Instead, throughout 2022 and the following years, the bank maintained a very high key rate to contain inflationary pressures. The key rate was 7.5% at the end of 2022 and then increased dramatically in 2023 and 2024, reaching a record high of 21% by October 2024. The policy was tight and restrictive, reflecting elevated inflation and economic conditions.
As of June 2025, the Bank of Russia began easing monetary policy by cutting the key rate by 100 basis points from 21% to 20%. This was the first cut since September 2022, signaling the start of a gradual easing cycle due to easing inflationary pressures and a narrowing output gap. However, the bank emphasized that monetary policy would remain tight for a long period to ensure inflation returns to its target of 4% by 2026. Inflation was still elevated, and the outlook for inflation risks remained tilted to the upside, constraining the size and speed of further rate cuts[1][3][4][5].
Therefore, the expectation of lowering the key rate to 15% by the end of 2022 was not realistic and was not consistent with the actual monetary policy trajectory. Even by mid-2025, the rate was still extremely high at 20%, with only the beginning of rate cuts. The monetary policy approach was to maintain tight rates for an extended period before gradually lowering them as inflation moderates sustainably[1][3][4]. Thus, the Bank of Russia’s timeline did not target or meet a 15% interest rate by the end of 2022, and any lowering towards that level would occur only gradually after inflation substantially eases, starting from mid-2025 onward at the earliest.
In light of the Bank of Russia's forecast and ongoing monetary policy, Finance experts may need to reconsider any predictions about lowering the key rate to 15% by the end of this year, as the bank plans to maintain a tight monetary policy for an extended period to ensure inflation returns to its target.
Regarding future decisions regarding the key rate, it appears that the Bank of Russia will continue to prioritize tight monetary conditions, aiming to bring inflation down to its target of 4% by 2026.
