Banks across the nation to commence reduced interest rates on mid-term and long-term savings accounts.
In a surprising shift, the Central Bank of Russia has slashed its key interest rate for the first time in close to three years, signaling a possible downturn in medium- and long-term deposit yields, according to experts at VTB. Meanwhile, short-term deposits are expected to become more appealing, increased competition among banks for deposits with terms up to six months is on the horizon, as reported by "Khabarovsk Krai Today" news agency.
Financial Landscape
Deposit Market
Reeling from the Central Bank's rate decrease, Sberbank, Russia's leading bank, has decided to lower deposit rates by 1 percentage point, maxing out at 19% annually for deposits starting from June 11, 2025. With other banks likely to follow suit, the trend indicates a potential reduction in yields for medium- and long-term deposits.
Lending Market
Although a lower key rate generally translates to reduced borrowing costs over time, VTB estimates that there won't be a substantial decrease in retail lending rates. Even with a 20% key rate, credit costs are predicted to remain incredibly high, keeping a "credit renaissance" at bay for now. VTB is closely scrutinizing the credit product landscape, with final decisions set to be revealed later, taking into account the regulator's stance and competitor actions.
Banking Battlefield
The reduction in deposit rates may result in diminished competition among banks. Should consumers have fewer reasons to search for high-yielding deposits due to lower overall rates, the competition among banks to attract depositors could take a hit.
That being said, economic factors and sanctions might exert influence over consumer behavior and bank strategies. Banks might still vie for deposits by offering other incentives or innovative products, but the immediate impact of the rate cut could be a slight decline in competition as deposit yields are diminished.
In conclusion, while the rate cut marks a step towards loosening monetary policy, the Central Bank's stand on maintaining stringent conditions indicates that notable changes in lending and deposit rates could be slow and influenced by broader economic factors.
In the wake of Sberbank's decision to lower deposit rates following the Central Bank's rate decrease, there may be a potential reduction in competition among banks for medium- and long-term deposits, owing to diminished yields.
Despite the possibility of a decline in competition, banks might still strive to attract depositors through offering other incentives or innovative products, given the impact of economic factors and sanctions on consumer behavior.
