A small shock: the Central Bank slowed down the reduction of the key rate

Following the meeting on June 19, the Bank of Russia lowered its key rate by 0.25 percentage points to 14.25% per annum. At the same time, the regulator's rhetoric has become tougher. The Central Bank has made it clear that it will assess inflation risks particularly carefully and does not rule out pauses in the policy easing cycle. Against this background, experts believe that the rate is unlikely to fall below 13% by the end of the year. Why the regulator is acting so cautiously and how it will affect the economy is in the Izvestia article.

Why did the Central Bank reduce the key rate by only 0.25 percentage points in June?

This decision by the Central Bank went against market expectations — the consensus forecast of analysts predicted a 0.5 percentage point decrease in the key rate to 14% following the results of this meeting.

The economy continues to grow at a moderate pace after a temporary slowdown at the beginning of the year, the Bank of Russia explained. The steady price pressure has decreased slightly, but it still remains elevated and corresponds to a range of 4-5% in annual terms.

"We do not see any risks of hypothermia in the economy," said Central Bank Governor Elvira Nabiullina during a press conference following the meeting.

Further rate decisions will depend on the sustainability of the slowdown in price growth, the dynamics of inflation expectations and the assessment of internal and external factors, the regulator's press service stressed. According to the Central Bank's forecast, annual inflation will decrease to 4.5–5.5% in 2026, and then return to the target level of about 4%.

The situation on the labor market has stopped improving, according to the assessment of the Bank of Russia. Although companies' plans to raise wages are gradually becoming more restrained, unemployment is still at historic lows, and wage growth continues to outpace productivity gains.

At the same time, the risks of accelerating inflation still prevail over the factors of their slowdown, the Central Bank noted. Among the main threats, the regulator highlighted the continuing high expectations for price increases and prolonged wage increases, which are faster than productivity increases. There is also a deterioration in the global economic situation and additional pressure from the motor fuel market.

Separately, the Bank of Russia pointed to budgetary risks. If the structural deficit of the treasury remains elevated until 2029, this may require a tighter monetary policy compared to the baseline scenario.

Government demand will make a greater contribution to GDP in 2026 and 2027, which means that the influence of the private sector should decrease, the head of the Bank of Russia explained. Otherwise, these investments may result in an acceleration of inflation.

The Central Bank does not perceive the calls of representatives of departments and businesses for a more active reduction in the key rate as pressure, Elvira Nabiullina clarified in response to a question from Izvestia. According to her, the regulator makes decisions independently, based on its own analysis and taking into account a wide range of economic factors.

According to the Central Bank's medium-term forecast, the average rate in 2026 will be 14-14.5%.The next meeting on the key issue is scheduled for July 24.

How much will the key rate decrease by the end of the year

The market reacted to the unexpected decision of the Central Bank by lowering quotations. According to Trading View, the Moscow Exchange Index fell by 1.4% and approached 2,400 points, although it was at 2,455 points earlier in the day.

The impact of the Central Bank's decision on the ruble exchange rate will be neutral, said Sergey Klisenko, Managing director of the rating service of the National Rating Agency (NRA). According to him, by the end of June, the price of the "American" will remain below 75 rubles.

The profitability of deposits is likely to continue to decline gradually following the easing of monetary policy, said the head of the expert analytics department "Banks.<url>" by Inna Soldatenkova. According to her, since the March meeting of the Central Bank, the average maximum deposit rate has decreased from 10.6% to 10.1% per annum. Against this background, investors are increasingly fixing the current conditions for the long term and are starting to look at other investment instruments. However, there is no mass withdrawal of deposits, as they still provide predictable returns.

It is not worth changing the savings strategy now, the expert believes. Despite the decrease in the key rate, the real cost of loans at rates above 26% and annual inflation of 5.6% remains high. Therefore, a noticeable reduction in the cost of loans in the coming weeks should not be expected, although individual banks may adjust their offers.

In general, the cost of loans reacts more slowly to the decisions of the Central Bank than deposit rates, <url> clarified. Given that the key has dropped by only 0.25 percentage points, the impact will be weak.

Such a step will not have an immediate impact on the economy, noted entrepreneur Alexander Shkarupa. Since the beginning of the year, the key interest rate has decreased by only 1.75 percentage points, so small steps alone cannot quickly trigger the growth of investments, mortgages or consumer lending. For the Central Bank, such decisions are primarily a way to gradually test the economy's response to policy easing.

— If the rate is lowered too quickly, demand may revive before supply can recover. Then part of the effect will go not into production growth, but into a new round of prices," explained Freedom Global analyst Vladimir Chernov.

At the same time, a more cautious approach to lowering the key interest rate may lead to a more restrained pace of economic recovery in the second half of the year, the NRA concluded. According to their estimates, GDP growth in this period will be minimal, and the economy will actually remain near zero dynamics in the second half of 2026.

Currently, the Bank of Russia has several reasons to be cautious at once: inflation expectations remain elevated, the labor market remains tense, budget expenditures support domestic demand, and the situation with the fuel market adds additional pro-inflationary risks. Therefore, the most likely scenario remains a slow and consistent reduction in the key rate, even despite expectations of faster policy easing on the part of the economy.