Interest rate slashed to 18% by the Central Bank
The Bank of Russia has announced a reduction in the key rate from 20% to 18% on July 25, 2025, signaling a continuation of the easing of monetary policy due to a faster-than-expected decrease in inflationary pressures and a slowdown in domestic demand growth [1][3]. This move indicates that the economy is gradually returning to a balanced growth trajectory.
The decision to lower the key rate was made by the Board of Directors of the Bank of Russia. This reduction, a decrease of 200 basis points, is expected to lower the cost of loans, thereby providing a boost to economic growth by making borrowing cheaper for consumers and businesses [2].
In terms of impact on the Russian economy, inflation is forecast to decline from around 9.2% in mid-2025 to 6.0–7.0% by the end of 2025, returning to the 4% inflation target by 2026, supporting the rationale for looser monetary policy [1]. However, despite the rate cut, monetary conditions will remain tight for a long period to ensure inflation stabilization, with projected average key rates of 18.8–19.6% for 2025 and further reductions to 12.0–13.0% in 2026 [1][3].
The slowing domestic demand and moderated inflation suggest the economy is gradually stabilizing after previous shocks. Following the Bank of Russia's decision, banks have begun announcing reductions in interest rates. For instance, Sberbank, a prominent financial institution, will lower its maximum deposit rates to 16% starting July 28, 2025. Sber's minimum consumer credit rates will be at 20.9%, and market mortgage rates will be at 19.4% per annum [5].
The reduction in the key rate typically leads banks such as Sber to lower their lending and deposit rates, making loans more affordable, especially consumer and mortgage loans, thereby potentially increasing demand in these sectors [2][5]. The immediate market reaction includes adjustments in financial institutions’ expectations and an increase in enthusiasm for credit uptake among consumers and developers [5].
However, it's important to note that while credit becomes somewhat cheaper, lending rates remain relatively high, reflecting the continued cautious monetary stance. The key rate remains elevated (18%), which suggests that while the cost of borrowing has decreased, it is still relatively high compared to historical levels.
In summary, the key rate cut from 20% to 18% by the Bank of Russia aims to balance the ongoing reduction of inflation with supporting economic growth. It makes credit conditions moderately more favorable in banks like Sber, which may stimulate some recovery in lending and consumer activity, but monetary policy is still tight to keep inflation in check and ensure sustainable growth [1][2][3][5]. The Bank of Russia plans to maintain the current monetary policy tightness until 2026 to bring inflation back to its target.
Following the Bank of Russia's reduction in the key rate, businesses and consumers may experience cheaper loans, as financial institutions like Sberbank adjust their lending rates. However, despite the lower rates, the key rate remains elevated at 18%, indicating that borrowing costs are still relatively high compared to historical levels.
