MOSCOW, July 25. /TASS/. At its upcoming meeting on July 25, the Board of Directors of the Bank of Russia is expected to consider lowering the key interest rate from its current level of 20% per annum to 18%, according to experts surveyed by TASS. A majority of analysts point to a sustained decline in inflation, a significant slowdown in economic activity and lending compared to the previous year, easing tensions in the labor market, and a strong ruble exchange rate as key factors supporting a rate cut.
At its previous meeting in June, the Bank of Russia reduced the key interest rate from 21% to 20% per annum following an extended period of holding the rate steady, citing a steady decline in inflationary pressures. In early July, Kirill Tremasov, Advisor to the Governor of the Bank of Russia, stated that the regulator would undoubtedly consider reducing the key rate by no less than 100 basis points (bps) at the July meeting.
Market opinions diverge
According to analysts, the observed slowdown in both economic activity and inflation makes a rate cut at the July 25 meeting virtually inevitable. "The regulator is likely weighing a conservative cut of 100-150 bps against a more aggressive step of 200 bps," Head of the Banking and Money Market Analysis Department at Veles Capital Yury Kravchenko said.
In his view, the Central Bank remains cautious due to elevated inflation expectations, the role of volatile factors (in addition to more stable components) in slowing inflation, and the still fragile nature of the disinflationary process itself. "Under these conditions, it will be critically important for the Central Bank to send a clear signal to the market to shape future expectations, regardless of the size of the rate cut, potentially by updating the parameters of its macroeconomic forecast," he emphasized.
Some analysts are more optimistic regarding the potential for a rate cut of more than 200 bps. For example, Gazprombank Chief Economist Pavel Biryukov told TASS that, in addition to a 200-bps reduction scenario, the probability of a more substantial 300-bps cut is growing. "Market indicators of participant expectations support such a move. However, a broader cut will likely necessitate a firmer policy signal from the regulator to avoid triggering excessive market optimism," he concluded.
Conservative scenario still considered
Other experts believe the Bank of Russia may opt for a more modest reduction to 19% per annum (a 100-bps cut). "A key factor in slowing inflation this year has been the strengthening of the ruble, which does not appear to be highly sustainable under current global conditions. Therefore, I wouldn’t expect a markedly faster pace of monetary easing than what we’ve already seen. I think the Bank will consider 1 or 2 percentage point reductions and will likely favor a more gradual trajectory through year-end, as that path provides more predictable outcomes for managing rate expectations," Senior Director for Sovereign and Regional Ratings at ACRA Dmitry Kulikov said.
Olga Belenkaya, Head of Macroeconomic Analysis at Finam, agreed that the regulator may limit itself to a 100-bps cut, noting persistent inflation in the services sector, a still-tight labor market, inflation expectations among households hovering at 13-14%, high spending and budget deficits in the first half of 2025, uncertainties surrounding the current and upcoming three-year budget frameworks, and risks to the ruble posed by a new round of US import tariff hikes beginning August 1 and potential new sanctions from the US and EU against Russia and its trade partners.
Forecast for the end of 2025
Analysts stress that a rate cut of more than 100 bps would automatically prompt the Bank of Russia to revise its forecasts for the key rate and inflation. "In our view, given the accelerated pace of easing aimed at reducing the excessive restrictiveness of monetary policy, it would be logical for the Bank to raise its long-term rate forecast to temper overly optimistic expectations among businesses and households regarding further rate reductions," Chief Economist at BCS World of Investments Ilya Fedorov said. According to him, current inflation trends suggest that the rate could fall to 14% by the end of 2025, implying a 200-bps cut in September followed by incremental 100-bps cuts through the remainder of the year.
In the coming months, the Bank of Russia is expected to continue gradually reducing the key rate, followed by a likely pause, after which the pace of cuts will slow further. "We currently forecast the key rate to reach 16% by October 2025, remain at that level through February 2026, and decline further to 14% by the end of 2026. However, it is clear that the trajectory will be heavily dependent on incoming data," according to analysts at investment management firm Pervaya.
Meanwhile, Sovcombank emphasizes that even after a 200-bps rate cut to 18%, real interest rates would remain significantly positive and approximately at the same level as before the reduction.