Economic slowdown in the Urals region and growth in deposits led to the Central Bank's decision to adjust interest rates
In a significant move, the Bank of Russia has lowered its key interest rate to 18% following a cut of 200 basis points from 20%, effective July 25, 2025. This decision comes as the economy, particularly the Sverdlovsk region, begins to exit its overheated state.
The head of the Ural Regional Directorate of the Bank of Russia, Marina Miasnikova, has reported that savings in the region are growing, and inflationary pressure has been decreasing since November last year. In fact, the growth rate of inflation in June in the Sverdlovsk region was a modest 0.4%.
Despite these positive signs, Miasnikova has cautioned that pro-inflationary risks still prevail. However, she also highlighted that enterprises in the region continue to develop and take loans, albeit less actively than in 2024. Residents of the region added an additional 6 billion rubles to their deposits in May, a testament to the attractive deposit rates in the region.
The Bank's decision to reduce the key rate is a logical step, according to Miasnikova, as economic growth and demand are slowing, with Russia's economy growing only 1.4% year-on-year in Q1 2025, the slowest pace in two years. Lending growth is moderate, and the economy is returning to a more balanced growth path after rapid expansion fueled by government spending during the war.
The Bank's key rate decisions are influenced by various factors, including inflation dynamics, economic growth and demand, monetary policy stance, and external factors. Inflationary pressures, including core inflation, are declining faster than previously forecast, with annual inflation as of July 21, 2025, at 9.2%, down from earlier quarters. The Bank expects inflation to decrease to 6.0–7.0% in 2025 and return to its target of 4.0% in 2026.
The Central Bank emphasizes maintaining tight monetary conditions as necessary to ensure inflation returns to target levels. Although the Bank cut rates, it signals a cautious, "hawkish" tone, suggesting monetary policy will remain tight for an extended period to secure sustainable disinflation.
Looking ahead, future key rate decisions will be based on the stability of the inflation slowdown and inflation expectations, as stated by Miasnikova. Economist Konstantin Selianin predicts that the key rate may drop to 15% by the end of 2025. However, Miasnikova emphasized the need for caution in future key rate decisions.
The region, however, faces a high labor shortage, with enterprises' demand estimated at 46,000 employees. Despite this challenge, food and equipment, including cars, have become cheaper in the Sverdlovsk region.
In conclusion, the Bank of Russia's decision to reduce the key rate is a positive step towards stabilizing the economy and anchoring inflation expectations. However, the Bank maintains a cautious approach, expecting to keep rates relatively high through 2025 and 2026 to ensure a gradual return to balanced growth.
[1] Central Bank of Russia. (2025). Monetary Policy Decision. Retrieved from https://www.cbr.ru/eng/press/ [2] Central Bank of Russia. (2025). Inflation Report. Retrieved from https://www.cbr.ru/eng/stat/inflation/ [3] Central Bank of Russia. (2025). Economic Report. Retrieved from https://www.cbr.ru/eng/stat/economy/ [4] Central Bank of Russia. (2025). Financial Stability Report. Retrieved from https://www.cbr.ru/eng/stat/financialstability/
Businesses in the Sverdlovsk region are taking loans more cautiously, yet the growth in resident's deposits, such as the additional 6 billion rubles added in May, indicate a positive trend in finance. The Central Bank of Russia has lowered its key interest rate to 18%, with a potential further drop to 15% predicted, as they maintain a cautious approach towards monetary policy decisions to ensure a gradual return to balanced growth and stabilize the economy.
