It will get warmer by the summer: the Central Bank's signals indicate a reduction in the key rate in June

The Central Bank may move to lower the rate earlier than expected — as early as June, experts interviewed by Izvestia believe. Although the regulator, as they predicted, kept it at a record level of 21% in March, the Bank of Russia clearly softened its signals, albeit cautiously. They stressed that both inflation and inflation expectations are gradually decreasing, economic activity is slowing down, and the labor market is softening — there is less demand for personnel in certain industries. All this allows us to count on a positive scenario: as early as April, the Central Bank may consider, among other options, a rate cut, and in June it may even take action. What may prevent its implementation is in the Izvestia material.

The Central Bank's rate decision in March 2025

At a meeting on March 21, the Central Bank decided to keep the key rate at 21%. In a release following the meeting, the regulator, although it stated that in the future, along with other options, it would consider raising the key rate, generally described the inflationary picture more positively than before.

The seasonal increase in prices in February amounted to 9.1% and decreased by almost a third compared to the fourth quarter, the Central Bank reported. Inflation was restrained, among other things, by the strengthening of the ruble since the beginning of the year. The expectations of the population and businesses for price increases are also decreasing.

— For non-food products, price growth has slowed to moderate levels. Moreover, this slowdown primarily affected the segment of durable goods: cars, household appliances, furniture. And their prices are most sensitive to our policy and exchange rate dynamics," said Central Bank Governor Elvira Nabiullina at a press conference of the Central Bank following the meeting.

She also noted that the strengthening of the ruble has a positive effect on prices. However, further dynamics will depend on the actual change in external conditions — for now, it is premature to say how the exchange rate translates into inflation.

The second positive factor that the Central Bank noted at the end of the March 21 meeting was a more moderate increase in economic activity in early 2025 compared to the fourth quarter of 2024. Our economy is following the trajectory of a "soft landing", without sharp fluctuations, Elvira Nabiullina said.

Thirdly, the situation on the labor market is improving, the Bank of Russia noted. The share of enterprises experiencing staff shortages is decreasing. The demand for labor in certain industries is also decreasing, and people are moving to other sectors. And the number of resumes per vacancy continues to grow.

At the same time, the positive factors that the Central Bank noted earlier remain in effect. In particular, there is a high inflow of citizens' funds to current accounts and term deposits.

— Our further decisions will depend on whether the rate and sustainability of the decline in inflation are sufficient to return it to 4% in 2026. If they are insufficient, we can take an additional step to raise the rate, although the probability of this has decreased," Elvira Nabiullina summed up.

When will the key rate be lowered

Analysts interviewed by Izvestia regarded the signals of the Central Bank at the March meeting as very positive. More than half of the 14 experts admit a reduction in the key rate in the first half of the year, which is more likely to happen as early as June.

— The regulator is likely to move to lower the key rate in the second quarter. Inflation is gradually slowing down, and if there are no new price spikes, there is a high probability of a transition to monetary policy easing," said Anton Pavlov, Deputy Chairman of the Board of Absolut Bank.

Mikhail Vasiliev, chief analyst at Sovcombank, is confident that a small but consistent slowdown in price growth and a decrease in inflation expectations will be enough to reduce inflation in April-June. In the near future, the regulator will be able to at least change course.

The longer the downward trend in price growth indicators lasts, the higher the likelihood of a reversal of the Central Bank's policy, said Alexey Khmelevsky, head of investment management at Sberbank Life Insurance. According to him, monthly inflation in February was 0.62%, while in December it was almost twice as high. Unemployment has rebounded from historical lows and started to rise, which means there are more available labor resources in the country.

The chances of monetary policy easing (PREP) They have already increased significantly in the first half of the year, as inflation may decrease even more in March, said Viktor Grigoriev, chief analyst at Bank Saint Petersburg. Russians' expectations for price increases have also dropped to their lowest levels since September 2024.

Mitigation of the PREP is possible with a more active cooling of lending and domestic demand, said Olga Belenkaya, head of the Macroeconomic Analysis Department at Finam. The more inflation slows down, the less justified the high key rate looks.

"However, the most likely option is to reduce the rate from June to July, reaching 17-18% by the end of the year," Finam concluded.

Nevertheless, a third of market participants surveyed by Izvestia are confident that the Central Bank will keep the key level at 21% for the entire first half of the year. A rate cut earlier than July should not be included in the baseline scenario, said Dmitry Kulikov, senior director of ACRA.

Before the start of the DKP mitigation cycle, the regulator should prepare the market with a soft signal — that is, there should be no words in the press release about the possibility of a rate increase, said Viktor Grigoriev from Bank Saint Petersburg. Under favorable conditions, this can happen in April.

How the expectations for the key will affect the market

Even softening the Central Bank's rhetoric will be enough to start a new wave of purchases of Russian stocks, which will lead to an increase in their value, Finam is confident. The stock market is growing on expectations of a rate cut, so the Moscow Exchange index in this case may increase by 10% in the coming month, said Mikhail Kosov, economist at Plekhanov Russian University of Economics.

Consequently, the increased attractiveness of investments in Russian stocks may support the ruble exchange rate, which has already strengthened by more than 25% since the beginning of the year and is trading at 84.7 per dollar. Nevertheless, the growth of the national currency is rather temporary and speculative — its value now strongly depends on the geopolitical background and expectations about the end of the Ukrainian conflict.

Deposit rates will continue to decline in the coming weeks and may drop to an average of 19%, said Denis Popov, managing expert at the PSB Center for Analytics and Expertise. Banks don't need expensive funding right now, so they will take advantage of the opportunities to make it cheaper, BCS World of Investments noted. The yield on deposits may well drop to 12-14% by the end of 2025, which will ensure the flow of funds into other financial instruments, Sovcombank concluded.