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Anticipates Reduction of Key Rate to 17% by Year's End according to State Duma

Banking Authority may implement additional rate decreases in 2025, according to projections, culminating at around 17-18% year-end. This prediction comes from Anatoly Aksakov, leader of the Financial Market Committee in the State Duma.

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Anticipated further reductions in key interest rates by the central bank in 2025, potentially...
Anticipated further reductions in key interest rates by the central bank in 2025, potentially reaching a level of 17-18% by year's end, as suggested by Anatoly Aksakov, the leader of the Financial Market Committee of the State Duma.

Anticipates Reduction of Key Rate to 17% by Year's End according to State Duma

Prepare for the Central Bank's Anticipated Key Rate Drops in 2025

Gear up for a potential series of key rate reductions in 2025, with a predicted year-end figure of 17-18%, according to Anatoly Aksakov, head of the State Duma's financial markets committee. Aksakov speculates a rate reduction to 19% in July.

Aksakov's assertion comes after the central bank mildly lowered the key rate for the first time since September 2022, from 21% to 20%, due to signs of slowing inflation and the initial phase of an economic cooldown.

The slowdown in price growth hasn't been uniform; instead, it has mostly affected non-food products, influenced by the temporary strengthening of the ruble.

If positive trends persist, Aksakov suggests the regulator might lower the rate by another 1-2 percentage points. According to his statement on Telegram, this could happen if inflation expectations decrease, labor market pressures ease, and budget policy settles down in accordance with its previously set guidelines.

Following the rate cut to 20%, the Bank of Russia stated its intent to maintain strict monetary conditions to restore inflation to its target of 4% by 2026. However, the bank refrained from indicating the expected direction of its future decisions. The bank's statement read: "Further decisions on the key rate will depend on the speed and sustainability of inflation and inflation expectations."

Alexander Shokhin, president of the Russian Union of Industrialists and Entrepreneurs (RSPP), urged for a rate reduction to prevent mass bankruptcies, manage burgeoning non-payment risks, and reboot the economy onto a growth trajectory. Shokhin proposes a symbolic reduction to 20% to signify a return to normal economic functioning.

Background and Analysis

The Bank of Russia signaled its intentions to maintain tight monetary conditions despite the recent rate cut, signifying a prolonged period of tight monetary conditions. On June 6, 2025, the Bank reduced its key rate by 100 basis points to 20% per annum—its first rate cut since 2022—amid declining inflationary pressures. Inflation in April 2025 settled at 6.2% (annualized), down from an average of 8.2% in the first quarter, while core inflation indicators also showed easing[1][3].

| Factor | Current Status/Outlook | Impact on Rate Decision ||--------------------------|-----------------------------------------------|------------------------|| Inflation | Falling (6.2% in April 2025) | Favor further cuts || Core Inflation | Easing (4.4% in recent data) | Favor further cuts || Domestic Demand | Outpacing supply | Risk of inflation persistence || Labor Market | Tight (unemployment: 2.3%) | Risk of wage-price spiral || External Risks | Geopolitical, oil, exchange rate volatility | Cautious stance || Policy Stance | Remains tight | Gradual approach |

Key Takeaways

  1. Inflation and core inflation indicators have been steadily declining, suggesting the economy is gradually stabilizing.
  2. The gradient of domestic demand growth continues to outpace the expansion in the supply of goods and services, posing a risk of persistent inflation.
  3. The labor market remains tight (unemployment at 2.3%) and real wages are rising, supporting robust domestic demand and cautioning against possible wage-price spirals.
  4. Geopolitical tensions, oil price volatility, and exchange rate dynamics pose external risks that could re-ignite inflation.
  5. The Bank of Russia is committed to returning inflation to its target of 4% by 2026, and future rate decisions will be contingent on the trajectory of various economic factors. [1][3][4]

In light of the Central Bank's recent rate cut to 20%, there may be potential for further finance-related changes in the business sector as the regulator considers lowering the key rate by another 1-2 percentage points based on external factors, inflation expectations, and budget policy conditions. Alexander Shokhin, president of the RSPP, has urged for such rate reductions to avoid mass bankruptcies, manage non-payment risks, and stimulate economic growth.

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