Russia’s central bank may start cutting rates next year

Russia’s central bank may start cutting its benchmark interest rate next year, provided there were no new shocks to the economy, governor Elvira Nabiullina said on Tuesday. Nabiullina said raising the rate to 21%, a level not seen in Russia for over 20 years, was proving effective in fighting inflation, currently running at 8.5%, and will bring it down to 4.

5-5.0% next year. “As it slows down, we will consider a gradual reduction of the key interest rate, provided there are no additional external shocks.



The reduction will begin next year,” she said during a hearing at the Russian parliament. The central bank forecasts an average interest rate of 17-20% in 2025. The bank is facing growing criticism from business leaders over high borrowing costs, with some accusing it of deliberately stifling the economy at a time of confrontation with the West over Russia’s actions in Ukraine.

Critics say its tight monetary policy could lead to stagflation, when high inflation is coupled with low economic growth or a recession. Nabiullina said stagflation was usually the result of a soft monetary policy with stimulus failing to boost growth and fuelling inflation instead. “We do not face this risk, providing that we have timely monetary policy,” Nabiullina said.

The International Monetary Fund forecasts Russia’s economic growth will slow to 1.3% in 2025 from 3.6% in 2024.

Nabiullina said that corporate lending and investment remained strong while consumer lending was slowing down. She added that early estimates suggested corporate lending and inflation rates could both start to slow in the coming months as a result of the bank’s tight monetary policy. “We are now at the breaking point,” Nabiullina said.

Source: Reuters (Reporting by Elena Fabrichnaya, writing by Gleb Bryanski; Editing by Kevin Liffey, Ed Osmond and Christina Fincher).