The decision of the Bank of Russia's Board of Directors to reduce the key rate by 100 basis points to 20% per annum has been approved. The regulator's statement notes a decrease in inflationary pressure, including the sustained excess of domestic demand over the capacity to expand the supply of goods and services. The Russian economy is gradually returning to a path of balanced development.
The Bank of Russia is committed to maintaining tight monetary policy conditions necessary to achieve the inflation target by 2026. This implies a prolonged period of strict monetary policy implementation. Future decisions regarding the key rate will depend on the speed and sustainability of inflation and inflation expectations decline. According to the Central Bank's estimates, under the current monetary policy, annual inflation will decrease to 4% by 2026 and will remain at the target level thereafter.
In April, the current inflation rate, taking into account seasonal fluctuations, decreased to 6.2% per annum compared to an average of 8.2% in the first quarter. Core inflation stood at 4.4%, while the previous quarter's average was 8.9%. Most indicators of stable inflation are in the range of 5.5-7.5% per annum. According to the Central Bank, data for May indicate further inflation rate deceleration, albeit with a significant impact of volatile indicators. According to the regulator's assessment, annual inflation as of June 2 slowed down to 9.8%, with inflationary pressure in food products and services remaining high.
Since the beginning of October last year, the key rate of the Bank of Russia has remained at a historic high of 21%. The last time it was lowered was in September 2022, from 8% to 7.5%. Since July 2023, the rate has been raised due to inflation acceleration and lending growth.
Olga Belenkaya, Head of Macroeconomic Analysis at "Finam" company, notes: "We assumed that the decision to stay at 21% with a subsequent transition to a soft position would be the main scenario, although a rate cut was also possible. Analysts were divided in their opinions on maintaining or reducing the key rate. The Central Bank expressed a neutral signal that further rate steps would depend on the inflation dynamics and inflation expectations."
According to experts, the Central Bank aims to convey to the market that the current rate cut is more related to adjusting the strictness of monetary policy in conditions of inflation slowdown rather than the declared intention to continue the rate reduction cycle based on data, as stated by Belenkaya in "Finam's" materials. The current decision is considered favorable for the market, though moderate due to the neutral signal.
The next meeting of the Bank of Russia's Board of Directors, where the key rate issue will be discussed, is scheduled for July 25.
