Russia: Bank of Russia accelerates monetary policy easing cycle in July
Interest rates down to one-year low: At its meeting on 25 July, the Bank of Russia decided to cut the policy interest rate by 200 basis points to 18.00%, bringing the policy rate to a one-year low. The move was largely in line with market expectations and came on the heels of June’s 100 basis point rate reduction—the first one since 2022.
Lower inflation and cooling demand pave way for larger cut: The Central Bank’s decision was primarily driven by a faster-than-expected decline in both headline and core inflation, a slowdown in domestic demand growth plus easing labor shortages and slowing wage growth. Still, the Bank stressed that upside risks to inflation persist due to elevated inflation expectations, a still-tight labor market, higher-than-expected economic growth and deteriorating terms of trade.
Further rate cuts on the horizon: The Bank of Russia indicated that it will maintain monetary conditions as tight as necessary to return inflation to the 4.0% target by 2026, with the policy interest rate averaging 18.8–19.6% in 2025 and 12.0–13.0% in 2026. Our Consensus is for roughly 200 basis points of further cuts this year, though the spread across forecasts is wide at 50–500 basis points. Our panelists forecast both inflation and annual GDP growth to slow in H2, paving the way for further monetary policy easing by December.
The Bank should reconvene on 12 September.
Panelist insight: EIU analysts commented on the outlook:
“We expect the [Central Bank] to remain cautious. The bank faces the unenviable position of still-high inflation (with the actual rate probably higher than official statistics suggest) and a sharply slowing economy, raising the spectre of stagflation in the coming months. We nonetheless expect monetary loosening to continue in 2025, with the main rate ending the year at 16%, and to continue to fall across the forecast period. We note, however, that there remains the potential for large and sudden movements if the bank perceives a sharp change in the underlying data.”