Translation. Region: Russian Federal
Source: Central Bank of Russia –
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On July 25, 2025, the Board of Directors of the Bank of Russia decided to reducekey rateby 200 bp, to 18.00% per annum. Current inflationary pressures, including persistent ones, are declining faster than previously forecast. Domestic demand growth is slowing. The economy continues to return to a balanced growth trajectory.
The Bank of Russia will maintain the tightness of monetary conditions that is necessary to return inflation to the target in 2026. In the baseline scenario, this implies an average key rate in the range of 18.8-19.6% per annum in 2025 and 12.0-13.0% per annum in 2026, and means a long period of tight monetary policy. 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 current monetary policy, annual inflation will decrease to 6.0-7.0% in 2025, return to 4.0% in 2026, and remain on target thereafter.
In 2Q25, seasonally adjusted current price growth slowed to 4.8% annualized, after averaging 8.2% in 1Q25. Core inflation was 4.5%, after averaging 8.8% in the previous quarter. Annual inflation, as of July 21, was 9.2%. However, the monthly growth of the consumer price index will temporarily increase in July due to the significant indexation of utility tariffs.
The impact of tight monetary conditions on demand is increasingly evident in the reduction of inflationary pressure. The effects of tight monetary policy, including through the strengthening of the ruble, are largely reflected in the low growth rates of prices for non-food products. These effects are gradually manifesting themselves in the reduction of inflationary pressure in food products and services. Price dynamics remain uneven, but the spread by components has somewhat decreased.
A stable downward trend in inflation expectations has not yet formed. Long-term expectations calculated from financial market instruments have slightly decreased. Inflation expectations of professional analysts and the population have not changed significantly. Business price expectations in July slightly increased for the first time since the beginning of the year. In general, inflation expectations remain at an elevated level. This may prevent a more sustainable slowdown in inflation.
The Russian economy's upward deviation from the balanced growth trajectory is decreasing. Operational data, including in 2Q25, and survey indicators indicate a further slowdown in domestic demand growth while overall economic activity continues to grow moderately.
There are more signs that the tension in the labor market is easing. According to surveys, the share of companies experiencing a labor shortage continues to decline. There is still a decrease in demand for labor in certain industries and its flow to other sectors. Wages are growing more slowly than in 2024, but the rate of their increase is still outpacing the growth of labor productivity. Unemployment is at historical lows.
Monetary conditions remain tight, influenced by the monetary policy and autonomous factors. Since June, nominal interest rates have fallen in most financial market segments following the reduction in the key rate and the revision of market participants’ expectations for its further trajectory, but they remain high in real terms. Non-price conditions for bank lending are also tight.
While deposit rates are falling, households remain highly inclined to save. Lending trends are uneven across segments. Unsecured consumer lending is declining, while the portfolio of mortgage and corporate loans is growing at a moderate pace. Lending activity remains generally subdued.
Pro-inflationary risks prevail over disinflationary ones over the medium term. The main pro-inflationary risks are associated with a longer-term continuation of the upward deviation of the Russian economy from the balanced growth trajectory and high inflation expectations, as well as with the deterioration of foreign trade conditions. A further decline in the growth rates of the global economy and oil prices in the event of increased trade tensions may have pro-inflationary effects through the dynamics of the ruble exchange rate. Geopolitical tensions remain a significant uncertainty factor. Disinflationary risks are associated with a more significant slowdown in lending growth and domestic demand under the influence of tight monetary conditions.
The Bank of Russia proceeds from the declared parameters of the budget policy. Its normalization in 2025 will have a disinflationary effect. A change in the parameters of the budget policy may require an adjustment of the monetary policy being pursued.
Following the meeting of the Board of Directors on the key rate on July 25, 2025, the Bank of Russia updated medium term forecast.
August 6, 2025The Bank of Russia will publish a Summary of the Key Rate Discussion and a Commentary on the Medium-Term Forecast.
The next meeting of the Board of Directors of the Bank of Russia, at which the issue of the key rate level will be considered, is scheduled forSeptember 12, 2025The press release on the decision of the Board of Directors of the Bank of Russia will be published at 13:30 Moscow time.
Please note: This information is raw content obtained directly from the source of the information. It is an accurate report of what the source claims and does not necessarily reflect the position of MIL-OSI or its clients.
