Today, the Governor of the Bank of Russia, Elvira Nabiullina, announced a decision to reduce the key interest rate to 18% per annum. This decision comes as inflation, including its underlying components, is slowing down. The growth of consumer demand and lending expansion are also moderating.
Nabiullina emphasized that “tight monetary policy has become a fundamental factor behind disinflation and the return of the economy to a more balanced growth path.” She highlighted that it is crucial for monetary policy to remain tight long enough to ensure sustained low inflation levels.
The Governor explained that recent data from May and June show price growth rates approaching 4% annually. Measures of underlying inflation have decreased to between 4-6%. As a result, the annual inflation forecast has been revised downwards to 6-7% by year-end.
Price growth across goods and services groups and regions has decreased but remains higher than during periods of low inflation. Services such as healthcare and personal services have seen decelerating price growth. However, price pressures in public catering remain elevated due to changes in consumer preferences towards services like out-of-home food and domestic tourism.
In non-food goods sectors like electronic devices, household appliances, and cars, prices have been declining for several months. The high interest rates are impacting these prices through reduced consumer lending and a stronger ruble.
Inflation expectations remain elevated among households and businesses despite recent trends. “Although the current price growth rates have already approached 4%, the downward trend should still consolidate,” Nabiullina stated.
Demand expansion is slowing down in line with economic capacity increases. Investment activity remains high due to government support in priority sectors. Labour market tightness has decreased slightly with fewer companies reporting staff shortages.
Monetary conditions remain tight but have eased compared to June. Nominal interest rates have decreased across most financial market segments following the key rate reduction.
Credit expansion is slower than in previous years with uneven trends across segments. Consumer loans continue contracting while mortgages and corporate lending grow moderately.
External conditions show a revised forecast for Russian crude prices at $55 per barrel for 2025-2026 due to trade tensions between major economies affecting external demand and increased OPEC+ oil production boosting supply.
The ruble exchange rate benefits from high-interest rates making ruble assets attractive despite slight export declines. Proinflationary risks persist alongside geopolitical risks; however, disinflationary risks include faster-than-expected cooling in credit demand.
Fiscal policy remains an important factor for forecasts assuming adherence to fiscal rules in future years. Changes could lead to adjustments in projected key rate paths.
Nabiullina concluded by stressing patience needed when making decisions amid emerging disinflationary trends after prolonged elevated inflation periods: “We need to be patient… especially when disinflationary trends have emerged just recently.”
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