Interest rate cut to 20% signals shift in Russia’s inflation strategy
"The Bank of Russia has lowered the key interest rate by 100 basis points to 20% after maintaining it at 21% annually for an extended period," reports Russian agency Tass. The inflation in Russia has previously caught the attention of President Putin, who called it "alarming," adding that the Russian economy is "overheating."
"On June 6, 2025, the Bank of Russia Board of Directors decided to cut the key rate by 100 basis points to 20.00% per annum. Current inflationary pressures, including underlying ones, continue to decline," reported the Bank of Russia. The statement added that "while domestic demand growth is still outstripping the capabilities to expand the supply of goods and services, the Russian economy is gradually returning to a balanced growth path."
"The Bank of Russia will maintain monetary conditions as tight as necessary to return inflation to the target in 2026. This means that monetary policy will remain tight for a long period. Further decisions on the key rate will be made depending on the speed and sustainability of the decline in inflation and inflation expectations," concluded bank in the statement.
CNBC notes that the interest rates have been held at 21% since last October, at the highest level since 2013, when the new benchmark rate was introduced. "The inflation rate in April was 6.2%, it said, down from an average 8.2% across the first quarter of 2025," reports CNBC.
Nevertheless, the Russian ruble is the world's best-performing currency this year, with gains of over 40%. The Bank of America argues that the outcome can be attributed to capital controls, policy tightening and a decline in the U.S. dollar. "The strength in the ruble has less to do with a sudden jump in foreign investors’ confidence than with capital controls and policy tightening," reports CNBC, quoting the market watchers.
