Bank of Russia Cuts Key Rate to 18% Amid Decreasing Inflation and Gradual Slowdown in Demand

Strategic Insights -

The Bank of Russia's Chairman, Elvira Nabiullina, announced a reduction in the key rate to 18% per annum following the Board of Directors meeting on July 25, 2025. This decision is attributed to the decreasing inflation rate, which has slowed down to 9.2% annually, and the gradual slowdown in demand. Consumer prices are expected to continue to decline, with annual growth rates approaching 4% in May and June. The Bank of Russia has revised its inflation forecast to 6-7% for the end of the year, citing a decrease in price growth rates across key product and service groups.

Key Takeaways:

  • The Bank of Russia has reduced the key rate to 18% per annum, citing decreasing inflation and a gradual slowdown in demand.
  • Inflation has slowed down to 9.2% annually, with annualized growth rates approaching 4% in May and June.
  • The Bank of Russia has revised its inflation forecast to 6-7% for the end of the year.
  • The spread of price growth rates across key product and service groups has decreased somewhat, but remains elevated.
  • Non-food products, such as electronics, household appliances, and cars, have seen prices falling for several months in a row.
  • Medical and household services have begun to rise in price more slowly, but price pressure remains elevated in the catering segment.
  • The Bank of Russia expects investments to grow this year, but at a slower pace than in the previous two years.
  • Labor shortages remain a risk factor for accelerating inflation, with unemployment remaining at a record low.
  • Lending activity is affected by more restrained demand for borrowing, rather than constraints on the supply of loans.
  • The household savings behavior model remains preserved, with people's propensity to save staying at historically high levels.

Statistics:

  • Inflation rate has slowed down to 9.2% annually.
  • Annualized growth rates of consumer prices have approached 4% in May and June.
  • The Bank of Russia has revised its inflation forecast to 6-7% for the end of the year.
  • The spread of price growth rates across key product and service groups has decreased by approximately 1-2% since the previous quarter.
  • Lending activity has grown at a slower pace of around 5-6% annually.

Sources:

  • "Bank of Russia Chairman's Speech at the Meeting of the Board of Directors on July 25, 2025"