Russian Central Bank has decreased the key interest rate to 18%
Russia's Central Bank Lowers Key Interest Rate Amid Improving Inflation Conditions
The Central Bank of Russia has announced a reduction in the key interest rate from 20% to 18%, effective July 25, 2025. This decision comes in response to declining inflationary pressures and slowing domestic demand growth.
Elvira Nabiullina, the Chairman of the Central Bank, expressed concerns about expectations of a too rapid reduction in the key rate. She warned that such a move could lead to an opposite result, similar to last year's situation when inflation increased after premature actions by market players.
The Central Bank's future decisions regarding the key rate will depend on the stability of the inflation slowdown and expectations, as reported by the Central Bank's press service. The bank aims to return inflation to its target set for 2026.
Inflation has been cooling significantly. Seasonally adjusted annualized inflation dropped from 8.2% in Q1 2025 to 4.8% in Q2, while core inflation fell from 8.8% to 4.5% in the same period. Domestic demand growth is also slowing, which reduces upward pressure on prices, supporting lower rates.
The Central Bank has also lowered its inflation forecast for 2025 from 7-8% to 6-7%. Their baseline forecast suggests the average key rate in 2025 will be between 18.8% and 19.6%, dropping to between 12.0% and 13.0% in 2026. This means some fluctuations or possible increases may occur in 2025 despite the recent cut.
Despite the reduction, the Central Bank signals a cautious approach, maintaining monetary conditions as tight as necessary to bring inflation back to the target of 4% by 2026 and beyond. This implies the key rate will stay relatively high for an extended period.
The economy is returning to a balanced growth trajectory, according to the Central Bank of Russia. The bank's plan envisions an average key rate of 18.8-19.6% in 2025 and a key rate of 12-13% in 2026.
In summary, the cut to 18% reflects improving inflation conditions and a cooling economy. However, the Bank of Russia signals a cautious approach, keeping policy tight and prepared to adjust rates as needed to meet its inflation target in the medium term.
[1] Central Bank of Russia, Press Release, July 25, 2025. [2] Central Bank of Russia, Monetary Policy Report, July 2025. [3] Central Bank of Russia, Inflation Report, July 2025. [4] Central Bank of Russia, Economic Review, July 2025. [5] Central Bank of Russia, Financial Stability Report, July 2025.
- The Central Bank of Russia's decision to lower the key interest rate from 20% to 18% could impact various segments of the business sector, as lower rates may encourage increased borrowing and investment.
- With the inflation slowdown and the Central Bank aiming to return inflation to its target set for 2026, businesses operating in finance may experience fluctuating market conditions, necessitating careful financial planning and strategies for risk management.
