Bank announces reduction of main interest rate to 18%
Bank of Russia Lowers Key Rate by 2% to 18% in Gradual Easing Cycle
The Bank of Russia has announced a 2% cut in the key rate, reducing it to 18%, marking the second consecutive reduction and a significant step towards easing monetary policy [1][3]. This decision, made at the July 25 meeting, follows a smaller reduction of 1 percentage point at the previous meeting in June [2].
The move reflects the central bank's response to declining inflationary pressures and slowing domestic demand growth. Elvira Nabiullina, the head of the Bank of Russia, has allowed for a further key rate cut of 100, 150, and 200 basis points at separate meetings [3].
The key rate reduction is part of a gradual easing cycle, with the central bank signaling that while inflation is declining faster than forecast, monetary policy will remain tight in the near term to meet inflation targets. The Bank expects annual inflation to decline to 6–7% by the end of 2025 and return to its 4% target in 2026 [1][3].
Russia's economy grew modestly at 1.4% YoY in Q1 2025, the slowest pace in two years, highlighting ongoing structural challenges and subdued private investment despite easing rates [3][5]. The central bank’s 18% key rate level remains high by global standards, indicating cautious monetary policy even amid easing.
While the 2% cut is sizeable, the Bank’s stance is still described as "hawkish," with the central bank focusing on gradual lowering of long-term rates to avoid destabilizing inflation expectations [3]. Additional easing of up to 200 basis points or more is conditional on sustained inflation slowdown and economic dynamics, rather than a guaranteed immediate move [1][3].
High key rates have contributed to reduced loan demand in household sectors but corporate loan demand has remained relatively stable, helped by some restructuring of bad loans [5]. A gradual rate cut could stimulate borrowing and investment but risks remain due to structural issues and external economic uncertainties.
In summary, the key rate cut to 18% and the possibility of further cuts up to 200 basis points represent the Bank of Russia’s calibrated approach to supporting slower domestic demand and stabilizing inflation around target levels over 2025–2026. The outlook is for a gradual easing cycle with rates remaining relatively high in the near term, aiming to balance inflation reduction with encouraging sustainable economic growth amid a challenging environment [1][3][5].
[1] Bank of Russia Official Statement, July 25, 2025. [2] Bank of Russia Official Statement, June 6, 2025. [3] Financial Times, July 26, 2025. [4] Bloomberg, July 26, 2025. [5] Reuters, July 26, 2025.
The Bank of Russia's decision to lower the key rate by 2% to 18% indicates a focus on finance, aiming to support slowing business growth and manage inflation. The central bank has signaled a gradual easing cycle, signifying the ongoing adjustment of monetary policy to meet economic demands.
