Unlock the publisher’s digest free
Roula Khalaf, editor -in -chief of the FT, selects her favorite stories in this weekly newsletter.
Friday, the central bank of Russia reduced its key interests by a full point to 20%, its first drop since 2022, while the war economy of Vladimir Putin cools.
“The domestic demand continues to go beyond the ability of the economy to extend the supply of goods and services, but Russia is gradually returning to a more balanced way of growth,” the CBR said in its press release explaining the decision.
This decision, which was expected by the majority of economists interviewed by Bloomberg, comes after a drop in inflation and stresses the end of an increase in GDP of two years, fueled by warships.
The decrease in annual inflation to 9.8 cents in June after a two -figure growth section of several months was probably at the heart of the drop in rates, several economists at the Financial Times told.
“The CBR clearly indicated that its main objective is the regular decline in inflation,” said Olga Belenkaya, responsible for macroeconomic analysis at FG Final based in Moscow shortly before the rate announcement on Friday.
But the bank stressed that the reduction on Friday would not mark the start of a rapid reduction in rates, adding that it would maintain the monetary conditions as tight as it is necessary “to return inflation to its target of 4% in 2026.
The CBR noted that although the inflationary risks have slightly released, they always prevail over the forces that would cause consumption for consumer cooling in the medium term.
The bank ended up in a “very difficult place,” said Janis Kluge, an expert in the Russian economy of the German Institute for International Affairs and Security. Although inflation is softening, its power is uncertain, with declining non-food prices, but food costs increase and reach the poorest the poorest, he added.
Since the summer of 2023, the Russian economy has been hot, fueled by the fulgance of expenditure linked to government soldiers. The Governor of the CBR, Elvira Nabiullina, had previously compared the situation to a car “race at full speed”, warning that it “can go fast, but not long”.
To curb the pace and curb inflation, which has cumulatively climbed approximately 35% since the start of the large -scale war against Ukraine, the CBR had maintained interest rates to a record of 21% since October of last year.
But high borrowing costs have weighed at the demand of businesses and consumers. “Retail loans have mainly stopped, and business loan growth has become tiny – but it was the pill to take,” said Oleg Kouzmin, chief economist in the Capital Renaissance, based in Moscow.
Now the challenge is a cooling saving. “It is inevitable, but we must act carefully to avoid excessive cooling, as in a cryochamber,” warned President Vladimir Putin in March.
In the first quarter of 2025, Russia’s GDP increased by only 1.4%, according to the main Russat Russat Statistics Agency, a significant drop of 4% in the previous two years. The growth of a quarter to a quarter of the season has even been negative, for the first time since 2022.
