Central Bank of Russia kicks off loosening cycle in June

Rates lowered from an all-time high, as expected: At its meeting on 6 June, the Central Bank of Russia (CBR) kicked off a monetary policy easing cycle, cutting its policy rate by 100 basis points to 20.00%. The move largely matched market expectations. Still, the cut followed the cumulative 1,350 basis points of increases since July 2023 that brought the policy rate to an all-time high of 21.00%; as a result, rates remain at some of the highest levels in Russia’s recorded history.

Narrowing output gap and easing inflationary risks drive cut: The Bank assessed that the output gap—how much bigger actual economic output is compared to its potential level—has narrowed thanks to restrictive monetary policy. In line with this, policymakers noted that inflation cooled at the outset of Q2, with tighter credit conditions boosting households’ propensity to save and shoring up the ruble. They also pointed to signs that labor shortages and inflationary risks are easing. That said, the Bank underlined that the balance of risks to the inflation outlook remains tilted to the upside. Moreover, inflationary pressures for food remain elevated, as do inflation expectations among households and businesses alike, likely dissuading the Bank from a larger cut.

Further cuts clouded by inflationary risks: In a subsequent statement, Governor Elvira Nabiullina maintained a hawkish tone, stating that further easing will require “caution” and will likely include “pauses between steps”. Moreover, the Governor left room for potential rate hikes this year should inflationary risks materialize, especially those associated with fiscal stimulus and a weaker ruble. As a result, though a vast majority of our panelists see the Bank cutting rates further by December, the spread on the end-2025 rate remains large at 14.00–20.00%.

Panelist insight: JPMorgan’s Anatoliy Shal maintained a dovish tone: “We anticipate that both inflation and activity indicators will remain soft in the coming months, and don’t see any obvious obstacles for continued policy easing. We think the CBR will cut the policy rate 100bp again at the next meeting in July. The current level of real rate is, in our view, too high to justify shallow adjustments or pauses. We continue to see the policy rate at about 15% by end-year, with risks skewed slightly to the upside.” Goldman Sachs’ Clemens Grafe commented on the risks associated with the ruble: “We think that the strong Ruble is putting undue strain both on the budget and the exporting industries, in particular the oil companies. Even the recently revised budget that shows a deficit of 1.7%, which is 1ppt wider than the original one, is based on oil prices in Ruble that are far higher than the current levels and hence the deficit is likely to be wider even if the Ruble does not depreciate or oil prices rise.”

How should you choose a forecaster if some are too optimistic while others are too pessimistic? FocusEconomics collects Russian interest rate projections for the next ten years from a panel of 20 analysts at the leading national, regional and global forecast institutions. These projections are then validated by our in-house team of economists and data analysts and averaged to provide one Consensus Forecast you can rely on for each indicator. By averaging all forecasts, upside and downside forecasting errors tend to cancel each other out, leading to the most reliable interest rate forecast available for Russian interest rate.

Download one of our sample reports to visualize what a Consensus Forecast is and see our Russian interest rate projections.

Want to get access to the full dataset of Russian interest rate forecasts? Send an email to info@focus-economics.com.