MOSCOW: The Bank of Russia has cut its key rate for the second consecutive time - by 2 percentage points this time to 18% per annum, saying ...
MOSCOW: The Bank of Russia has cut its key rate for the second consecutive time - by 2 percentage points this time to 18% per annum, saying that inflationary pressures are declining faster than projected while domestic demand growth is slowing.
"On July 25, 2025, the Bank of Russia Board of Directors decided to cut the key rate by 200 basis points to 18% per annum. Current inflationary pressures, including underlying ones, are declining faster than previously forecast. Domestic demand growth is slowing. The economy continues to return to a balanced growth path," the regulator said in a statement following its board meeting on the key rate.
"The upward deviation of the Russian economy from a balanced growth path is narrowing. High-frequency data, including those for 2025 Q2, and survey indicators show a further slowdown in domestic demand growth with continued moderate growth of economic activity in general," according to the statement.
The Bank of Russia also lowered its forecast on the average key rate through the end of 2025 from 19.5-21.5% to 18.8-19.6%. Starting July 28 until the end of this year the regulator expects the average key rate at the range of 16.3-18%. The lower bound was reduced from 19.5% to 18.8% while the upper bound was lowered from 21.5% to 19.6%. The forecast for 2026 was downgraded from 13-14% to 12-13% while the 2027 outlook remained unchanged at 7.5-8.5%. The 2028 forecast also stands at 7.5-8.5%.
"The Bank of Russia will maintain monetary conditions as tight as necessary to return inflation to the target in 2026," the statement reads.
The Central Bank takes into account the announced parameters of fiscal policy. Its normalization in 2025 will have a disinflationary effect. Changes in the fiscal policy parameters may require an adjustment in the monetary policy pursued.
"In the baseline scenario, this implies an average key rate in the range of 18.8-19.6% per annum in 2025 and 12-13% per annum in 2026 and means that monetary policy will remain tight for a long period. Further decisions on the key rate will be made depending on the sustainability of the inflation slowdown and the dynamics of inflation expectations. According to the Bank of Russia’s forecast, given the monetary policy stance, annual inflation will decline to 6-7% in 2025, return to 4% in 2026 and stay at the target further on," the regulator said.
In 2025 Q2, the current seasonally adjusted price growth fell to 4.8% in annualized terms from the average of 8.2% in 2025 Q1. The similar indicator of core inflation equaled 4.5% after the average of 8.8% in the previous quarter. As of 21 July, annual inflation was 9.2%. Concurrently, in July, monthly increase in consumer price index will temporarily rise due to the significantly adjusted utility tariffs.
There are more signs of a softening in the labor market. "According to surveys, the share of enterprises experiencing labor shortages continues to shrink. Labor demand in certain industries has been decreasing with a reallocation of employees across industries. Wages rise more slowly than in 2024, but their growth rate is still outpacing the growth in labor productivity. The unemployment rate is at its record lows," the Central Bank said.
The Bank of Russia also lowered its forecast for the price of Russian oil for tax purposes in 2025 from $60 to $55 per barrel. The 2026 forecast was also lowered to $55 per barrel. The forecast for 2027 remained intact at $60 per barrel. In 2028, the Central Bank also forecasts the average price of oil for tax purposes at $60 per barrel.
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