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- The obvious is incredible: what will be the Central Bank's key rate by the end of 2025
The obvious is incredible: what will be the Central Bank's key rate by the end of 2025
The Eurasian Development Bank (EDB) forecasts the Bank of Russia's key rate at 18% by the end of 2025. At the same time, in real terms, rates will remain high amid a slowdown in inflation. Izvestia investigated to what extent this is a realistic forecast and which instruments of the Central Bank's monetary policy are most effective in curbing price growth.
The optimal bid
The reduction in the key interest rate is a positive signal, but it is important that it be part of a consistent strategy to create a more favorable financial environment for businesses, Sergey Katyrin, President of the Chamber of Commerce and Industry of the Russian Federation, told Izvestia.
— We believe that in the current conditions, it would be optimal to reduce the rate to 12-15%. It is in this range that businesses will be able not just to service loans, but to actually invest in long-term projects, modernize production facilities and expand them. Of course, a lot depends on the industry and the specific business model, but the general guideline is exactly that," he said.
16-18% per annum is exactly the range near which the interest rate would be most effective, Lazar Badalov, associate professor at the Faculty of Economics of the RUDN University, confirmed to Izvestia. Earlier, some experts have already expressed the opinion that an increase in the rate to 20% or higher with the current level of inflation in Russia is excessive.
— The rate above 20% becomes inflationary, which means that the interest that businesses have to pay for loans actually increases the prices of goods. The costs of producers and businesses are inevitably included in the cost of goods," the expert explained.
The forecast of a reduction in the key rate to 18% by the end of the year seems quite realistic, since the situation in the country's financial market is determined today by several powerful factors of multidirectional action, Tatyana Belyanchikova, associate professor of the Department of Global Financial Markets and Fintech at Plekhanov Russian University of Economics, noted in an interview with Izvestia. High inflation expectations, low unemployment, the risk of a falling ruble, and so on, of course, push prices up. However, the predicted slowdown in economic growth forces the financial regulator, if possible, to refrain from further raising the key interest rate.
— Given that the May data showed a slowdown in inflation, even to maintain the real rate and the current level of "rigidity" of monetary policy in the face of lower price growth, the key rate needs to be lowered. Therefore, if the trend continues and annual inflation does decrease from month to month, we may even reach a lower value of the Bank of Russia rate: in such conditions, the level of 15-16% may turn out to be normal," said Tatiana Belyanchikova.
However, with a decrease in foreign exchange earnings due to falling oil prices and a reduction in oil and gas exports, we should expect a cheaper ruble, which returns Russia to the value of 18%, the expert believes.
— Monetary policy, in addition to its most commonly used instrument (interest rates), can also use reserve provisions and open market operations. These long-known mechanisms also affect the volume of money supply and, through this channel, inflation. But in general, there are a number of other tools, from administrative (setting the price level for a number of goods) to fiscal (raising taxes)," she recalled.
However, these mechanisms, the expert admitted, are not always successful when it is necessary to stimulate production and GDP growth. And this task, we will have to repeat, may turn out to be significant by the end of the year.
Change scenarios
In general, the forecast of the Eurasian Development Bank is quite realistic, Oleg Akimov, Associate Professor of the Department of Banking and Entrepreneurship at the State University of Management, confirmed in an interview with Izvestia.
— If we take such a predictive indicator as the ROISfix rate, we will see a similar estimate. Participants in the Russian money market also expect a reduction in money market rates to 18.75% at the end of the year. In this case, the estimates of the EDB and major players in the money market on the dynamics and forecast level of the key rate are close," he explained.
The basic scenarios of the vast majority of public macro forecasts currently contain the expectation of a reduction in the key rate by 1-3 percentage points for the rest of 2025, Dmitry Kulikov, senior director of the ACRA group of sovereign and regional ratings, confirmed to Izvestia.
— I think that the reduction in the key rate will be stretched over time and will occur in approximately uniform steps of about 1 percentage point, and the main part of the rate reduction cycle will take one and a half years, provided there are no force majeure, - the expert is sure.
At the next meeting, the rate will remain unchanged at 20%, and two rounds of rate cuts will take place in the fall of 2025, Sergey Grishunin, managing director of the NRA rating service, confirmed to Izvestia. In addition to the rate, macroprudential policies limiting risky lending and the end of publicly available preferential mortgages have become the most effective measures to curb inflation.
— What the authorities have not been able to do so far, in our opinion, is to establish reliable coordination between fiscal and monetary policy. The latter would help to cope with inflation much faster," he believes.
The key rate may decrease to 16% by the end of the year, Grigory Zhirnov, an employee of the Laboratory of Macrostructural Modeling at the HSE Faculty of Economics, told Izvestia. This will happen if the Bank of Russia reduces it by 1 percentage point at each meeting remaining in the year, taking into account restrained inflationary pressures relative to the strong ruble exchange rate, cooling lending and the economy, such a scenario looks highly likely.
It is unlikely that Russia will be able to reach the average value of 17% for the whole year, Vladimir Klimanov, director of the IPEI Regional Policy Center at the Presidential Academy, told Izvestia. The values set out in the federal budget for calculating the compensation of concessional lending programs assume different conditions, and therefore federal budget expenditures will inevitably have to be increased relative to the originally planned ones. Inflation itself, as a result of the high key rate, should be lower than in 2024. However, monetary policy measures alone are not enough to reduce it. Nevertheless, it is precisely the tough stance of the Central Bank and its head that is the main deterrent to rising inflation.
Izvestia sent a request to the Central Bank, but no response had been received at the time of publication.
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