Russia teetering on edge of economic recession, according to Bloomberg
High interest rates have been taking a toll on various sectors of the Russian economy, with sales of housing, cars, and furniture all seeing a decline. This economic cooling has led to concerns, with the Economy Minister Maxim Reshetnikov warning of a slowdown in business activity.
Recent macroeconomic data suggests that further policy easing may be necessary to support the economy. Despite the Central Bank of Russia's caution, this data has prompted the Bank to take action. In June, the key rate was reduced from 21% to 20%, and on July 25, 2025, the Bank made another cut, lowering the key rate to 18%.
Analysts had anticipated further rate cuts after the initial reductions started in June, and the Bank's latest move aligns with market expectations for easing monetary policy. While a sharp reduction larger than 100 basis points in a single meeting is considered less likely now, the Central Bank may still gradually lower the rate depending on evolving economic data.
The Bank faces a delicate balance between combating inflation and preventing recession, exercising caution to avoid stimulating excessive credit and spending that could reverse gains in curbing inflation. Economist Olga Belenkaya, from Finam Investment Company, advises the Central Bank to address the slowdown in inflation to avoid overheating the economy and increasing financial pressure on businesses.
The shift in monetary policy aims to support the economy from recession risks caused by high interest rates and external shocks like oil price drops. If current trends continue, the Central Bank may resort to more decisive measures to lower the key rate. Most analysts expect the key rate to remain at 18%, but the Bank’s statements and expert analyses reflect continued openness to lowering rates if disinflation trends persist and recession risks grow.
In addition to the Central Bank's actions, other industries are also feeling the effects of the economic slowdown. Demand is falling, and non-state sector industries are showing instability. Wage growth is slowing down, and some companies, like AvtoVAZ, are considering a shorter workweek. Despite record-low unemployment (2.2%), labor demand is decreasing.
In June, inflation slowed to a level close to the target of 4%, offering the Central Bank some room to maneuver. With the key rate now at 18%, further gradual cuts are plausible if inflation continues to slow, and the economic situation worsens. The Central Bank remains cautious, monitoring inflation risks before making further moves.
In conclusion, the Central Bank of Russia has lowered its key interest rate to 18% in an effort to counteract the risk of recession and support the economy. Further gradual cuts are plausible if inflation continues to slow, and the economic situation worsens. The shift aims to support the economy from recession risks caused by high interest rates and external shocks like oil price drops. The Central Bank remains cautious, monitoring inflation risks before making further moves.
The Central Bank's decision to lower the key interest rate to 18% is an attempt to alleviate financial pressure on businesses, largely impacted by high interest rates and economic slowdown. A continued slowdown in inflation might prompt further gradual cuts in interest rates, aiming to support the business sector from recession risks and counteracting the impact of external shocks like oil price drops.
