Central Bank of Russia holds rates at historic high in April

Decision meets market expectations: At its meeting on 25 April, the Central Bank of Russia (CBR) decided to maintain its policy rate at an all-time high of 21.00%. This decision marked the fourth consecutive hold and had been penciled in by market analysts. Moreover, it followed a cumulative 1,350 basis points of increases since the CBR started tightening its stance in July 2023.

Central Bank doubles down on high interest rates in the near term: The Central Bank reiterated its commitment to maintaining interest rates elevated for a “long period” in order to guide inflation toward its 4.0% target by 2026. The CBR assessed that demand continues to outpace supply, that inflation expectations remain elevated, and that risks to the inflation outlook are still tilted to the upside. That said, several factors likely dissuaded the Bank from tightening policy further. Policymakers noted that inflation has begun to cool, with households’ propensity to save boosted by tighter credit conditions. They also pointed to signs that labor shortages are easing, and attributed higher stability in the ruble to elevated interest rates. Moreover, the CBR downgraded its 2025 forecast for average inflation from 9.1–9.8% to 9.0–9.6%.

Dovish shift on the horizon: In its communiqué, the CBR updated its average interest rate forecast for 2025 to 19.5–21.5% from 19.0–22.0% previously. As a result, the Bank left room for potential rate hikes this year should inflationary risks materialize, especially those associated with a weaker ruble caused by lower oil prices. Still, Governor Elvira Nabiullina’s subsequent statement was less hawkish than in March, leaving out an explicit reference to hikes in the near term. As a result, our Consensus is for the Bank to cut by 50 basis points at its next meeting on 6 June. Our panelists then see room for 50–650 basis points worth of additional reductions by December.

Panelist insight: Analysts at EmergingMarketWatch commented: “The CBR may begin cutting rates in the second half of 2025, possibly as early as July 2025. By the June 6 meeting, the Bank will already have access to almost complete data for April and May. A key motivation for future cuts would be the risk of deeper economic slowdown. However, the pace and scale of rate reductions remains uncertain.” JPMorgan’s Anatoliy Shal was more dovish: “We think the base case should be at the lower part of the forecasted [policy rate] corridor. […] We expect that the next six weeks of inflation data and further evidence of a significant cooling of the economy […] will strengthen perceptions that the CBR is falling behind the curve, which should allow it to pull the trigger in June (we understand CBR’s preference is to be behind the curve in the easing cycle due to four years of above-the-target inflation). But risks are that the board will decide to keep the policy extra-tight for a little longer through the July meeting. We continue to expect policy rates at 15% at end-2025.”

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