This week, the Central Bank of Russia unexpectedly lowered its key interest rate by 2 percentage points to 18%. Until recently, the rate was 20%, and before that it reached 21%. The move was explained by the slowdown in economic activity, despite rapid growth in previous years fueled by state military orders and oil revenues.
The regulator is attempting to stimulate the economy with cheaper loans amid initial signs of slowing inflation. However, experts warn that prematurely lowering the rate may pose risks to the banking system and stoke inflation in the future.
At the St. Petersburg Economic Forum, many politicians and government officials stressed the need for a rate cut, citing that the current high level suppresses lending and investment. Meanwhile, early symptoms of financial sector problems are already visible in Russia: the share of bad loans is growing.
Forecasts suggest further rate cuts are possible during 2025. However, risks remain high—if military spending persists and budget revenues decrease due to sanctions and falling oil and gas prices, inflationary pressure may intensify. In this case, the Central Bank will have to balance between supporting the economy and containing prices.
The decision to lower the rate is seen by experts more as a forced measure rather than a sign of macroeconomic stabilization. Budget deficits, government pressure and volatile energy markets complicate the Central Bank's task.
