Russian Central Bank reduces primary interest rate to 18%
Bank of Russia Eases Monetary Policy Amid Decreasing Inflation
The Bank of Russia announced a reduction in the key interest rate by 200 basis points to 18.00% per annum on July 25, 2025, marking a significant step in easing monetary policy after a period of high rates aimed at combating inflation[1][2][3].
The decision comes as a response to declining inflationary pressures and slowing domestic demand. Seasonally adjusted annualized price growth dropped to 4.8% in Q2 2025 from 8.2% in Q1 2025, and core inflation decreased similarly[1][2][3].
Looking ahead, the Bank of Russia intends to maintain tight monetary conditions for a prolonged period to ensure inflation returns to the target level. The baseline scenario projects an average key rate in the range of 18.8–19.6% for 2025, followed by a further decline to 12.0–13.0% in 2026[1][3].
The Bank anticipates that inflation will decline to 6.0–7.0% by the end of 2025 and return to the 4% target in 2026, in line with the Bank's inflation targeting framework[1][2][3]. However, the Bank remains cautious, emphasizing that future rate decisions will depend on the sustainability of the inflation slowdown and how inflation expectations evolve[1][3].
Despite the economic growth being slow (about 1.4% year-on-year in Q1 2025), weighed down by high rates and an overvalued ruble, factors constraining investment and growth, the Bank views the current tight monetary policy as essential to balance growth and disinflation[2][3].
In summary: - Current policy: Key rate cut to 18.0%, signaling start of easing cycle but maintaining tightness. - Economic conditions: Inflation and core inflation declining faster than expected; domestic demand slowing; economy growing slowly. - Future expectations: Average key rate around 18.8–19.6% in 2025, easing to 12–13% in 2026. - Monetary stance: Cautiously easing but tight policy will persist until inflation firmly returns to target.
This balanced approach aims to sustain disinflation without jeopardizing financial stability or economic recovery[1][2][3].
The reduction in the key rate was decided by the Board of Directors of the Bank of Russia. However, the statement did not provide any information about the impact of the key rate reduction on the economy. The Central Bank of Russia (CBR) aims to maintain a tight monetary policy, but no future plans or actions by the Bank of Russia were mentioned.
- The reduction in the key interest rate by 200 basis points signifies a shift in the Bank of Russia's monetary policy, reflecting improvements in the finance sector due to decreasing inflation.
- As businesses grapple with slowing demand, the tight monetary conditions established by the Bank of Russia will continue for an extended period, ensuring that inflation returns to the target level.
