Forecast for the year: the market expects another key reduction to 18%
The Central Bank may reduce the key rate to 18%, follows from the consensus forecast of Izvestia. Positive signals from the Bank of Russia hint at this. Price growth has also decreased — the seasonal inflation rate was 4% in June, but it is important for the Central Bank to ensure the sustainability of this trend. If the regulator lowers the key rate by 2 percentage points, the cost of loans may decrease, and the economy will receive a boost to growth. What will happen to the yield on deposits is in the Izvestia article.
Will the Central Bank lower the key rate in July
The Bank of Russia will reduce its key rate by 2 percentage points to 18% at its meeting on July 25, according to market players interviewed by Izvestia. This was indicated by 11 out of 15 analysts.
At the last meeting on June 6, after the reduction of the "key" by 1 percentage point, to 20%, there was a reversal in the cycle of monetary policy tightening, which began back in 2023. Before that, the last time the regulator made a decision to lower the rate was three years ago, in 2022.
The slowdown in inflation, which has continued since the last meeting of the Central Bank, speaks in favor of lowering the rate to 18%, said Vladimir Evstifeev, head of the analytical department of Zenit Bank. The dynamics of aggregate lending has slowed down to the forecasted values of the regulator, and the growth rate of the money supply is also normalizing.
Another reason why the Central Bank may lower its key rate is a slowdown in price growth. The level of seasonally adjusted inflation in June approached the Central Bank's target of 4%, added Igor Rapokhin, senior analyst at SberCIB Investment Research. The ruble exchange rate remains strong.
Zenit Bank, Sovcombank, PSB, OTP Bank, Absolut and Gazprombank are also expected to reduce the rate by 2 percentage points.
However, MTS and Russian Standard banks consider monetary policy easing by no more than 1 percentage point to be the most likely scenario.
—Still high inflationary risks, geopolitical tensions, as well as the likelihood of new sanctions do not give the Central Bank arguments for a more drastic step in lowering the rate," said Maxim Tymoshenko, director of the Financial Markets Department at Russian Standard Bank.
Artem Lyukshin, Associate Professor of the Department of State and Municipal Finance at Plekhanov Russian University of Economics, expects a similar decision from the regulator. According to him, despite the fact that inflation has been slowing for the third month, its annual level is still far from the target set by the Central Bank (in June it is 9.4%), plus low unemployment remains in the labor market (in May, according to Rosstat, 2.2%) and staff shortages.
There is a possibility that the regulator will reduce the rate to 18% in two steps — 1 percentage point each at meetings in July and September, expects Yuri Kravchenko, head of the Banking and Money Market Analysis Department at Veles Capital IC.
Deposit rates will decrease after the key one, and then with a time lag of about a month— and on loans, said Anton Pavlov, Deputy Chairman of the Board of Absolut Bank. This will lead to an increase in disbursements, primarily in the consumer lending segment, he added.
By the end of 2025, experts predict a key rate of 16 to 14%. In this scenario, deposit rates may also decrease further by December.
What will happen to inflation in Russia
A continued reduction in the key rate will signal that monetary policy is easing, which will increase business activity, said Artyom Lyushkin from Plekhanov Russian University of Economics. According to his estimates, the declining interest rate will lead to a weakening of the ruble against world currencies.
In addition, in the coming weeks after July 25, the yield on deposits will go to around 16%, Mikhail Vasiliev from Sovcombank expects.
However, until the market is convinced that the Central Bank has fully switched to the cycle of easing interest rate policy, there is no confidence in lowering loan rates, said Yuri Kravchenko of Veles Capital. Moreover, the risks of a key rate hike remain in force, even if they are hypothetical. But this is possible only in case of drastic changes in the economy.
Reducing the key interest rate will stimulate GDP growth, says Vladimir Lyubetsky, Associate Professor of the Department of National Economics at the Presidential Academy. However, we must assume that the economic growth rate is already above the medium-term trend, meaning that the Russian economy is overheated. A cooling-off period is needed now, so economic growth rates will decrease in the medium term, the expert expects.
For the stock market, lower interest rates are a positive factor that can give an impetus to the growth of the stock market, especially given the pronounced positive dynamics in the debt market that has been observed over the past few months, said Natalia Pyrieva, a leading analyst at Digit Broker.
Seasonally adjusted inflation from March to the July meeting decreased to 4.9% after 6.8%, which were at the June meeting, Mikhail Vasiliev, chief analyst at Sovcombank, drew attention. He expects price growth to slow down to 5.6% by the end of the year.
So far, high annual inflation rates exceeding 9% remain constraining factors for a deeper rate cut, said Artem Lyukshin from Plekhanov Russian University of Economics. Taking into account the current operating factors, under an optimistic scenario, the annual inflation rate will remain within 9-10%, he predicted.
Currently, inflation is significantly affected by the seasonal factor, when prices for fruit and vegetable products decrease, explained Anton Pavlov, Deputy Chairman of the Board of Absolut Bank. The effect of lower prices for this category of goods will be present in August and even September, he added.
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