The CBR getting ready to reconsider interest rate policy

RUSSIA ECONOMICS - In Brief 03 Jun 2025 by Evgeny Gavrilenkov

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Recent statistics from the CBR showed that as of May 1, household credit contracted by 0.5% YTD and increased by a mere 4.1% y-o-y, i.e., well below inflation (10.23%). From November 2024 to February 2025, household credit contracted in m-o-m terms every month. In March and April, it resumed growth, albeit very slowly (by about 0.1% on average in each case). Corporate credit grew by 0.6% YDT in 4M25 and posted a sharp deceleration compared to previous months, as it was up by 14.8% y-o-y as of April 1. The effect of a key rate hike to 21% couldn’t go unnoticed. At the same time, the effect on inflation was also straightforward. It fell to 0.4% m-o-m and, as of May 26, climbed to a moderate 0.21% MTD. Hence, one cannot rule out monthly inflation staying below 0.3% in May. If so, the y-o-y inflation could fall below 10% with prospects of further steady deceleration. These developments were accompanied by a noticeable deceleration of economic growth (in 1Q25, GDP reportedly grew by an unimpressive 1.4%). Generally, these developments coincide with CBR’s intentions announced in mid-2024 when the regulator started hiking the key rate aggressively. The CBR will hold its regular BoD meeting on June 6, and it seems that the time to act is approaching. Even though the regulator may not cut the key rate yet, as its policy used to be very cautious historically, CBR's rhetoric could soften – not least to soften some undesirable effects of its hawkish stance. The economy is no longer as overheated as in the past couple of years – and not only because of moderated credit growth. Monetary tightening could be one of the reasons for a massively appreciated ruble, which at the time of wr...