The board of the Central Bank of Russia (CBR) resolved to cut the key interest policy rate from 21% by 100 basis points to 20% at the policy meeting of June 6, the CBR said in a press release. (chart)

As followed closely by bne IntelliNews, the key interest rate has stayed at a record-high 21% since October 2024.

The CBR’s decision was anticipated by the market: ahead of the meeting the consensus expectations were that of 100 basis points cut, together with a clear signal of starting a more dovish monetary cycle.

The CBR has been reluctant to cut the rate as stubborn inflation continued to trend above 10%, far from the long-term policy goal of 4%.

However, as inflation moderated in spring 2025, and the regulator managed to curb lending through non-monetary means, the pressure on CBR increased to start the monetary easing cycle. 

The CBR indeed acknowledged the continuous disinflationary trend.

"Current inflationary pressure, including underlying inflation, continues to decrease," the CBR stated in the press release, adding that "the majority of core inflation indicators are within the range of 5.5% to 7.5% year on year." 

Annual inflation decelerated to 9.8% as of June 2, down from 6.2% seasonally adjusted in April and 8.2% on average in 1Q25. Core inflation fell to 4.4% in April, compared to 8.9% in the previous quarter, according to the CBR.

Still, the CBR did not give a clear signal on future monetary easing, defying expectations. The regulator said it will maintain a tight monetary stance necessary to bring inflation back to its 4% target in 2026. 

"This means a prolonged period of tight monetary policy," the CBR said, adding that future rate decisions will hinge on the pace and sustainability of disinflation and inflation expectations.

As far as the economic growth is concerned, the CBR noted: “the Russian economy is gradually returning to a balanced growth trajectory, even as domestic demand continues to outpace supply”.

As followed by bne IntelliNews, the economy, which was overheated by military spending amid tight labour market and structural bottlenecks exacerbated by sanctions, is clearly slowing down, apparently heading for a “soft landing”. 

At the same time the real sector continues to be overburdened by high borrowing costs that sank corporate profits in 2024, leading to a cascade of dividend cancellations and scaling down investment programmes.

The CBR’s decision to cut the key interest rate will thus be welcomed by both the government and the businesses.

“The communications suggest that policymakers have become more encouraged that overheating pressures in the economy are easing. The press statement noted that pro-inflationary risks have “decreased slightly” and that the upward deviation of the Russian economy from a balanced growth path is “narrowing” (previously it had said that the upward deviation was “significant”),” said Nicholas Farr, an emerging Europe economist with Capital Economics, in a note.

“That said, the statement still felt hawkish in a number of ways too. The statement provided no explicit guidance on the path for interest rates going forward, which suggests that an interest rate cut at the next meeting is not a done deal. The CBR also said that domestic demand growth is still outstripping supply, and raised concern about inflationary pressures in certain sectors,” Farr added.

At the press-conference following the decision the CBR Governor Elvira Nabiullina said the effects of earlier rate hikes are still being transmitted through the economy and warned that further easing should be cautious. 

She did not rule out pauses or even a reversal of cuts if inflation proves persistent. 

Nabiullina also addressed the recent pressure from the government officials to cut the rate, stressing that CBR’s decisions are based solely on internal analysis, as cited by RBC business portal.

Renaissance Capital analysts believe that despite cautiously neutral rhetoric with "hawkish" undertones in the press-release, the regulator's decision to cut the rate is a beginning of a policy shift.

Analysts at Renaissance Capital expect the CBR to continue cutting the key interest rate in 100bp steps, projecting the rate at 16% by end-2025 and 12% by mid-2026.  Key risks to this outlook include changes in fiscal policy and oil prices. 

The analysts surveyed by RBC business portal also believe that the key interest rate could be cut towards 15% by the end of 2025.