Summer reason: the key rate may be reduced to 20% as early as July
The key rate may be reduced to 20% in the summer, experts interviewed by Izvestia believe. Such conclusions allow us to draw softened signals from the Central Bank: having decided to keep the rate at 21% in April, the regulator stopped mentioning the possibility of raising it in the coming months. The market will continue to adjust to new realities: interest rates on both deposits and loans are already declining. Separately, the Bank of Russia stressed the impact of trade wars: the regulator has already lowered its forecast for oil prices, which risks weakening the ruble and further affecting inflation. What other risks the Central Bank sees for price growth can be found in the Izvestia article.
What did the Central Bank decide on the rate
The Central Bank kept the key rate at 21% following the meeting on April 25. At the same time, the regulator softened its rhetoric in its release and no longer threatens to raise the rate at upcoming meetings. Nevertheless, he did not warn about his intention to soften the policy, so the signal remains neutral.
Moreover, the head of the regulator, Elvira Nabiulina, stressed in her speech that there was a consensus among the board of directors on the decision, but the disputes were around the signal.
According to the Central Bank, inflationary pressure continues to decrease, although it remains high. In the first quarter of 2025, the current price growth decreased and averaged 8.3% after 12.9% in the fourth quarter of 2024. However, the regulator expects a reduction in inflation in the coming months.
— Now its slowdown is uneven across the consumer basket. The growth rate of prices for non—food products in March fell below 2% year-on-year, while for food and services they decreased less significantly and are still close to 10%," Elvira Nabiullina emphasized.
She stressed that people are more likely to borrow non-food products, but now, due to high interest rates, loans have slowed down along with prices for this category of products.
Why did the Central Bank keep the key rate at 21% in April
The economy began to slow down gradually and return to a balanced growth trajectory. But it is still difficult for production to cope with the increased demand, which is accelerated by budget expenditures.
The situation is also affected by the growth of household incomes due to the tight labor market, the Central Bank said. Unemployment is at historic lows (2.4%), although the shortage of personnel is gradually decreasing in many regions.
Borrowing rates remain high, which constrains the lending activity of both individuals and businesses, the Central Bank emphasized. Despite the deterioration of deposit conditions, Russians are actively saving money. At the same time, income growth allows the population to simultaneously increase savings and consumption.
— The currency channel also contributes to a slowdown in inflation. Tight monetary policy restrains import demand and increases the attractiveness of ruble assets. This helped the ruble strengthen in the first quarter, which also reduced price pressure," added Elvira Nabiullina.
How the Central Bank assesses the risks of a trade war
Separately, the head of the Central Bank touched upon the trade wars that are breaking out between the United States, China and other world economies this April.
— The main topic after the previous meetings was the revision of import duties in the world's largest economies. Because of this, we lowered our forecast for global economic growth in the medium term. Lower global demand will lead to lower commodity prices — we have reduced the forecast by $5 per barrel this year (to $60 per barrel)," Nabiullina said.
The forecast for exports to the Central Bank was also lowered to $414 billion, according to the medium—term forecast. The dynamics of imports ($303 billion) is expected to be more restrained due to the impact of tight monetary policy.
— One of the main risks of implementing the medium—term forecast is a greater cooling of the global economy due to trade wars. It is important not only how much the duties will increase, but also the constant uncertainty, which complicates investment planning," the head of the Central Bank emphasized.
If additional risks of duties are realized, then a further decrease in oil prices is possible, she stressed.
How the Central Bank changed its medium-term forecast
The Central Bank also updated its medium-term forecast, but there are few changes in it. The main thing is to clarify the range of the average key in 2025. Previously, it was 19-22%, but now it has changed to 19.5-21.5%.
This means that the regulator still allows the rate to rise to 22%. But at the same time, it also means that the rate will not be able to drop to 19% until the fourth quarter, explained economist Andrei Barkhota.
In general, the Central Bank's forecast indicates that the period of high inflation (above 20%) may last a couple of months longer than planned, Andrei Barkhota said. This should cool the ardor of overly optimistic market participants, who expected its decline in June.
In the release, the Bank of Russia itself stressed that it would take a longer period of high inflation to return to the 4% target. The regulator's decision will depend precisely on the rate of price decline and the sustainability of this trend. The next rate meeting will be on June 6.
When will the key rate be lowered
— At the next meeting on June 6, the Central Bank will also maintain the 21% rate and soften the signal even more. However, then he will probably be able to start reducing it," said Mikhail Vasiliev, chief analyst at Sovcombank.
Mitigation of the PREP is possible only in the second half of the year — no earlier than July, said Pavel Biryukov, an economist at Gazprombank. According to him, the regulator does not have enough data for April-May to make such a decision, which will appear only by the summer meetings.
The Central Bank may reduce the rate to 20% following the meeting on July 25, experts interviewed by Izvestia believe. Most of them believe that the regulator will reduce it in slow steps, by 1 percentage point over several meetings.
In the Dom Bank.The Russian Federation explained: if you reduce the key rate by only 0.5 percentage points, there will be no effect, and more decisive actions may give the market an excessive incentive. Therefore, the movement will be restrained.
"In any case, the market is waiting for monetary policy easing, since inflation, although very gradually, is still slowing down," said Natalia Milchakova, a leading analyst at Freedom Finance Global.
In the baseline scenario, the key rate may decrease to 19% by the end of the year, according to Anton Tabakh, chief economist at Expert RA rating agency. With a faster cooling of the economy, the rate may fall to 17%, but for this the situation must change dramatically.
Risks to inflation
It is unlikely that this year annual inflation will fall to 7%, which the Central Bank predicted for 2025, Natalia Milchakova explained. Judging by the dynamics of consumer prices in March and April, price growth will not slow down quickly.
The budget will have a key impact on the PREP, says Yuri Kravchenko, head of the Banking and Money Market Analysis Department at IC Veles Capital. If its deficit deviates slightly from the previously planned values (1.2 trillion rubles) by the end of the year, the rate will be reduced more actively. However, if the budget deficit widens, the Central Bank is likely to choose to remain cautious.
At the same time, the regulator must now maintain increased attention to the global economy, because due to the trade wars of the new US president, the rules of the game have changed a lot, added Olga Belenkaya, head of the macroeconomic analysis department at Finam. In the event of a serious external shock, price growth is likely to be faster due to a weak ruble and rising unshared inflation expectations, and the Central Bank has to take this risk into account. In this case, the regulator may be more cautious about the timing of the key rate cut.
In any case, the key rate growth period is over and now the only question is how long it will stay at 21%. The probability of tightening the PREP in the future is very low and the market is no longer counting on it. This can be seen from the latest changes in deposit rates — according to Izvestia, they have dropped below 20% in the shortest possible time.
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