The burden on the swing: GDP growth will slow to 1.4% despite the reduction in the key

The Bank of Russia lowered its key rate to 18% following a meeting on July 25, but this decision will not reverse the trend of slowing GDP growth. Analysts and financial market participants told Izvestia about this. The indicator will slow down to about 1.4% by the end of the year — to accelerate it, more active actions by the Bank of Russia and resolution of the problem of shortage in the labor market are needed. Nevertheless, loan rates will actively go down, and the stock market will receive an additional boost. How the Central Bank's decision will affect the economy is in the Izvestia article.

Why did the Central Bank lower its key rate

The Central Bank lowered the key rate by 2 percentage points to 18% at a meeting on July 25. The last time the regulator reduced it was a month and a half ago, on June 6. Thus, the Bank of Russia continues the cycle of monetary policy easing.

The regulator explained its decision by reducing inflation: in the second quarter of this year, seasonally adjusted price growth slowed to 4.8% (against 8.2% in the first quarter). As of July 21, annual inflation was 9.2%. However, price growth will temporarily accelerate this month due to the indexation of utility tariffs.

Inflation in the second quarter is declining largely because high interest rates and the tight policy of the Central Bank restrain demand, the regulator's press service noted. This is especially noticeable in the fact that prices for non-food products are rising slowly. The strengthening of the ruble is also having an effect — it makes imports cheaper.

"The slowdown in inflation is becoming more pronounced," Central Bank Governor Elvira Nabiullina said at a press conference following the meeting.

There are more signs of a decrease in tension in the labor market — fewer and fewer companies are complaining about the shortage of workers, the Central Bank said. In some industries, the demand for employees is falling. Wages continue to rise, but not as sharply as in 2024 — although still faster than the increase in labor productivity.

Nevertheless, a steady downward trend in inflation expectations has not yet been formed, the Bank of Russia stressed. The regulator stressed its readiness to maintain such tight monetary conditions, which is necessary to return inflation to the target level of 4%.

"When making further decisions on the rate, we need to act carefully,— Nabiullina stressed.

In the coming months, the risks of accelerating inflation are higher than the possibility of reducing it, the Central Bank said. The main reasons are the overheating of the economy (it is growing faster than a sustainable level), high expectations of price increases among the population and the possible deterioration of foreign trade. If the global economy slows down and oil prices fall due to new trade conflicts, this could weaken the ruble and accelerate prices. There is also uncertainty due to geopolitics.

The Central Bank also adjusted its medium–term forecast: expected annual inflation was reduced to 8.6-9.2% (previously 9-9.6%), and the average key rate in 2025 was reduced to 18.8—19.6% (against the previous 19.5–21.5%). The forecast for GDP growth remained unchanged— within 1-2%. This indicates a gradual easing of the regulator's policy while maintaining cautious expectations about future price dynamics.

The next Central Bank meeting on the key rate will be held on September 12, 2025.

How will the Central Bank's decision affect GDP, loans, deposits, and stock prices

Russia's GDP growth will slow from 4.3% last year to 1.4% this year, despite the reduction in the key interest rate, according to Izvestia's consensus forecast. The analysts surveyed are confident that the negative effect of tight monetary policy will persist even at a rate of 18%.

This is due to the fact that by the end of 2025, the key interest rate in effect in the first half of the year will affect the economy, said Anton Fufachev, senior analyst at Gazprombank's CEP.

High interest rates do not affect the economy immediately, but with a delay, independent expert Andrey Barkhota confirmed. Even if the key rate remains high for only six months, it can reduce the volume of the entire economy by about 0.5–1.2%. This is happening because it is becoming more expensive for people and businesses to take out loans — they spend less, invest less, produce less. Such a decline usually stretches for a period of six months to one and a half years.

To mitigate this effect, practically radical measures are needed — for example, the lifting of sanctions and tax cuts, Andrei Barkhota noted.

The main driver of GDP growth in recent years has been government support for the economy and rising household incomes, said Pavel Samiev, Chairman of the Financial Markets Committee at Opora Russia. All this fueled demand for goods and services and gave a powerful boost to the economy. However, these incentives have now weakened: incomes are no longer growing at the same pace, and consumer demand has stabilized.

Slowing down overheated demand was the main objective of the regulator's policy. It was important for production to "catch up" with it in order to prevent further price acceleration.

But in order to really boost GDP growth, the rate needs to decrease much more than to 18%, Pavel Samiev is sure. A reduction of 2-3 percentage points is too mild and is not capable of stimulating the economy sufficiently.

The shortage of labor is also a problem — unemployment in the Russian Federation is currently only 2.4%, said Dmitry Golubkov, Director of Macroeconomic Analysis at OTP Bank. In order to solve it and ensure a noticeable increase in GDP, it is necessary to step up investments in economic development — to increase the cost of equipment and construction. This will increase labor productivity, which partially compensates for the shortage of personnel.

He also noted that due to the reduction in the key interest rate, the market value of shares may receive an impetus to growth. As a result, the Moscow Exchange index is quite capable of overcoming the 3,000-point mark. This is also indicated by Natalia Pyrieva, a leading analyst at Cifra Broker. According to her, a reduction in the rate will cause a flow of funds from cheaper deposits in stocks, which will accelerate demand for them.

Reducing the key will also create prerequisites for cheaper banking products, but this process can be slow and uneven, added Svetlana Frumina, economist at Plekhanov Russian University of Economics. The market reaction will take from one to six months, depending on the industry and the competition. At the same time, interest on deposits will decrease faster than on loans, Natalia Pyrieva believes.

— On average, loan rates may decrease by 1.5-2%, — said economist Andrei Barkhota.

Reducing the key in the future will in any case have a positive impact on the economy and support GDP growth, added Natalia Milchakova, a leading analyst at Freedom Finance Global. According to her, cheaper loans make them more affordable, which has a positive impact on production, consumption, services and retail trade. All these areas are important for the development of the economy.

It is possible that by the end of the year the regulator will lower the key to 14-15%, Anton Fufachev from Gazprombank expects. Business can develop normally at such a rate, as it creates sufficiently favorable conditions for raising funds through the issue of shares, Alexander Shokhin, president of the Russian Union of Industrialists and Entrepreneurs (RSPP), told Izvestia. In addition, companies will be able to build development strategies based on attracting loans, and not just on current profits.