Russia Monetary Policy - part.1

Over the past two weeks, Russia's central bank has maintained a cautious stance on monetary policy, despite recent inflationary trends. In mid-August, Andrei Gangan, head of the Bank of Russia's monetary policy department, indicated that while a further interest rate cut in 2025 is possible, it is not guaranteed. The key interest rate currently stands at 18%, and it might only be lowered if inflation decreases rapidly. Gangan noted that the central bank's baseline inflation forecast is 6–7% for 2025 and 4% in subsequent years, aligning with an average interest rate of 16.3–18% for the remainder of 2025 and 12–13% next year.

Despite some progress, with annual consumer price inflation easing to 8.79% in July from 9.40% in June, household inflation expectations grew to 13.5% in August. This persistent inflationary pressure has led the central bank to adopt a cautious approach, prioritizing sustainable control over inflation. The central bank's monetary policy guidelines for 2025–2027 emphasize the need for tight monetary conditions to bring inflation back to the target of 4% by 2026. The guidelines suggest that the average key rate will be in the range of 18.8–19.6% per annum in 2025 and 12.0–13.0% per annum in 2026, with monetary policy remaining restrictive for a long period.

The Bank of Russia's cautious approach to monetary policy reflects its commitment to achieving long-term price stability, despite the potential short-term economic challenges. The central bank continues to monitor inflation trends and economic indicators closely, ready to adjust its policy stance as necessary to maintain economic stability. The next key rate decision is scheduled for September 12, 2025, which will provide further insights into the central bank's assessment of the economic situation.