Economist Polidi speaks about reduced key rate
In a major financial move, the Bank of Russia decreased its key interest rate to 20%, effectively kick-starting a potential period of easy monetary policy - a change not seen since September 2022.
Alexander Polidi, Ph.D. in Economics, commented on the rate cut, stating that the Central Bank's decision to lower the key rate by 1% indicates a shift towards a more relaxed monetary policy due to weakened inflation response from previous high rates. Polidi's observations are supported by the past year's evidence of cooling business activity and slowdown in some sectors.
This slowdown is demonstrated by declining long-term orders in industries like machinery, agricultural machinery, and equipment manufacturing. Consumer demand, while still growing, has shown signs of deceleration as well. Alarm bells are ringing, signaling a need for the Bank to ease monetary policy.
Polidi has a confident outlook on the situation, expressing that despite the reduction in key rates, we won't witness a substantial drop in credit or deposit rates. Instead, there may be a slight decrease. This move, while significant for the economy, may not be sufficient to drastically alter the trend of slowing business activity.
Looking ahead, Polidi predicts that the Central Bank will keep monetary policy easy for at least a year, and possibly up to three years, before tightening again. As economists and financial experts scrutinize the Bank's decision, the question remains: will this shift in policy provide the needed boost to stagnant sectors, or will it just be a temporary reprieve before a harder economic reality sets in?
[1] Reuters, "Russia's key rate slashed to 20% as central bank eases policy", June 6, 2025. Link[2] The Wall Street Journal, "Russian Central Bank Begins Easing Monetary Policy", June 6, 2025. Link[3] TASS, "Russian Central Bank lowers key rate to 20% to stimulate economic activity", June 6, 2025. Link
With the reduction of the key interest rate to 20% by the Bank of Russia, a shift in the banking sector's finance policy is evident, potentially influencing the business environment. As Alexander Polidi, an economist, suggests, this move may not substantially alter the trend of slowing business activity, signaling the need for continued easy monetary policy in the upcoming years.
