Russia's economy: Rate cuts, gold and property growth ahead

PrimaMedia, April 23

VTB chief forecasts Russia's rate cuts, gold surge and property boom by 2027

At a meeting with clients, Andrei Kostin, President and Chairman of the Board of VTB, shared his views on the economic situation and the state of business, offered a forecast for the key interest rate and real estate prices, and provided savings recommendations.

On the Economic Situation and Business

"Despite all concerns, the economy and businesses are holding up. Even though debt burdens have surged, borrowing costs are high, and production is constrained, we believe the situation remains under control for now, and we do not see any major risks to the banking sector. On the contrary, the banking industry has been posting record profits in recent years."

On the Key Interest Rate

"For us, a 1% cut in the key rate means an additional20 billion rublesin revenue—primarily due to mortgages, which we have been actively issuing. The sharp rise in the key rate, however, led to negative results. Therefore, the prospects for further rate cuts remain. We expect the rate to continue declining, as Russia maintains a consistent policy of reducing inflation, giving the Central Bank grounds to lower the key rate."

We believe the rate should not exceed 12% by year-end, which would help normalize the retail sector. Retail lending is already showing positive growth over the past month. The trend of declining interest rates will only gain momentum.

Many argue that at 12%, borrowing will become easier and demand for loans will rise. But we need clearer figures—8-9% would be a significant relief compared to current levels. The rate will keep falling, and by 2027, I expect it to drop to a single-digit figure.

On Gold

"I am an advocate for investing in gold. My analysts still consider it a strong safe-haven asset over a10-year horizon, even though its fundamental value is closer to$4,000 or lowerthan today's price. But I believe they are underestimating certain factors. We have major gold producers here, and extraction costs are rising. Even in Russia,Polyushas high gold concentrations, while other companies have significantly lower yields—a trend seen globally.

In my view,$4,000 or moreis a solid benchmark, and gold remains a highly reliable investment. Over the past year alone, its price has surged by nearly40%—an exceptional factor—and I don't see a major pullback. It is a secure asset and a sound investment. I would generally recommend that those with spare funds allocate a portion of their savings to gold."

On Savings

At current rates, holding savings in rubles makes sense. As you can see, oil prices are high right now, and the ruble has strengthened partly because the Finance Ministry isn't buying foreign currency. But the level of returns we're seeing—with ruble deposits and ruble-denominated bonds yielding between 21% and 28% over the past 12 months—makes this the best-performing asset after gold. Right now, interest rates are high enough, the ruble's mid-term outlook is stable, and staying in rubles remains a solid choice—I'm confident this will hold through the end of the year.

I think a slightly weaker ruble would actually be positive for the economy, but I don't expect any dramatic decline.

What I'm observing now is that the dollar isn't in particularly high demand, either domestically or abroad. On one hand, it's hard to believe the U.S. economy or financial system could collapse. On the other, when you look at America's debt through the lens of common sense, it's impossible to see how it can ever be reduced—this perpetual money-printing machine, where debt is used to pay off debt, should theoretically crash at some point. Maybe not in our lifetime, but even with the dollar's dominance, this process can't go on forever. I'm not a proponent of the dollar.

On Real Estate

VTB is launching real estate funds that offer fairly high returns, and we believe property values will continue to rise. Right now, new construction is plummeting. Moscow is facing a critical shortage of commercial real estate for offices—a huge problem. You'd think businesses would be struggling, but demand for office space in Moscow is so strong it's surprising where all the money is coming from. That's why real estate is seen as a relatively safe investment, and we believe the outlook is promising. We expect property prices to grow by 10–20% annually, so we're optimistic.