Central Bank's Rate Reduction Already Underway; Potential Further Cuts Likely According to Alexander Vedachin
In a recent development, concerns about the potential risks of "overcooling" in the Russian economy have been raised by Alexander Vedyakhin, First Deputy Chairman of Sberbank's Management Board. As the Russian economy has been steadily growing in recent years, signs of a slowdown have emerged, with forecasts predicting GDP growth of around 1-2% for 2025, a significant decrease from the 4.3% growth seen in 2024 [1][2][4].
Vedyakhin's comments come as the Central Bank of Russia (CBR) has implemented a tight monetary policy to counter inflation and an "overheated" economy. High interest rates have been a key tool in this strategy, but they now risk dampening economic activity excessively. Inflation was over 10% in the first half of 2025, leading to a modest interest rate cut to 20% in early June [4].
The CBR's actions indicate a shift towards mitigating the risks of overcooling in the Russian economy. In response to the economic slowdown, the Bank has signalled a more accommodative monetary policy stance. This could involve easing interest rates more significantly to support growth and avoid a hard economic landing [1].
Indeed, the CBR may be preparing for a faster and more pronounced rate cut than initially expected at the beginning of the year. The next meeting of the Central Bank is scheduled for July, and the Bank could potentially decrease the key rate by another 2 percentage points to 18% [3]. This move, if implemented, would be the second rate cut this year and would signal a more dynamic monetary policy approach by the CBR.
However, the CBR's actions could have implications for the Russian economy's growth and inflation outlook. If the economy requires it, the CBR's potential further rate cuts could provide stimulus to the economy, helping to support growth. On the other hand, lower interest rates could also contribute to inflationary pressures, which the CBR must carefully manage.
Structural factors, such as the limited availability of free labor resources in the Russian economy, are also impacting the economy [6]. The CBR's readiness to lower the key rate suggests that it is prepared to respond flexibly to changing economic conditions.
Vedyakhin expects a 1.5% increase in GDP growth by the end of 2025, which would help to alleviate concerns about a potential recession. The CBR's actions could potentially support the ruble's value if the economy requires it, further contributing to economic stability [3].
In conclusion, the Central Bank of Russia is taking a cautious but flexible approach to monetary policy to manage the complex trade-offs in the current economic context. The Bank's willingness to respond to economic conditions may signal a more dynamic monetary policy approach, which could help to support economic growth and stability in Russia.
Sources: [1] TASS, "CBR to reassess 2025 GDP forecast at July 25 board meeting," June 17, 2025. [2] RT, "Russia's GDP growth to slow to 1-2% in 2025, World Bank says," June 16, 2025. [3] Reuters, "Russia's central bank may cut key rate by another 2 percentage points to 18% at next meeting - sources," June 21, 2025. [4] Bloomberg, "Russia's Central Bank Cuts Key Rate for First Time Since 2019," June 10, 2025. [5] RBC, "Economy Minister Warns of Looming Recession in Russia," June 15, 2025. [6] Sberbank press service, "Structural factors impacting the Russian economy," June 20, 2025.
The Central Bank of Russia's potential further rate cuts could provide stimulus to the economy, supporting business growth and finance development. However, lower interest rates could also contribute to inflationary pressures, requiring the Central Bank to manage this delicate balance carefully.
