Russia's central bank may begin cutting its benchmark interest rate next year, contingent on the absence of new economic shocks, according to Governor Elvira Nabiullina. During a parliamentary hearing, she noted that the current rate of 21%, the highest in over two decades, is effectively combating inflation, which stands at 8.5%. The bank aims to reduce inflation to 4.5-5.0% in 2024.
Nabiullina indicated that a gradual reduction of the key interest rate would be considered as inflation decreases, with forecasts suggesting an average rate of 17-20% by 2025. However, the bank faces mounting criticism from business leaders regarding high borrowing costs, with accusations of stifling economic growth amid ongoing tensions with the West over Ukraine.
Critics warn that the current tight monetary policy could lead to stagflation, characterized by high inflation and stagnant growth. In response, Nabiullina emphasized that this scenario typically arises from overly lenient policies, asserting that timely monetary measures will prevent such risks.
The International Monetary Fund predicts that Russia's economic growth will decelerate to 1.3% in 2025, down from 3.6% in 2024. Nabiullina also highlighted that while corporate lending remains robust, consumer lending is beginning to slow.