The Bank of Russia’s recent decision to lower the key rate by 1 percentage point, setting it at 20% per annum, is viewed by economists as having minimal impact on businesses and residents. This marks the first rate reduction since September 2022.

Experts suggest that the small decrease will not significantly alleviate financial pressures. Some economists believe a more substantial cut, bringing the rate below 15%, is necessary for businesses to experience tangible relief.

Financial Manager Vitaly Kalugin described the Central Bank’s action as insignificant, asserting that the difference between 20% and 21% is negligible. He also suggested the Central Bank might use this cut to deflect blame if inflation rises again. Kalugin anticipates a potential further rate cut in July but doubts the trend will continue due to persistent inflationary pressures, including concerns about a potentially poor harvest impacting food prices. He predicts a decrease in deposit interest rates as a result of the current cut.

Economist Maxim Maramygin sees the rate reduction as a signal that the regulator is prepared to further reduce the rate, potentially due to pressure from industrialists concerned about the economy. Maramygin suggests this move could encourage businesses to revive projects that were previously put on hold.

Credit broker Vadim Shukurov attributed the decision to a slowdown in inflation, noting that annual inflation peaked in March and has since begun to decline. He also highlighted the strengthening of the ruble as a contributing factor. Shukurov anticipates several more rate reductions by the end of 2025, potentially bringing the rate down to 15% per annum. He expects deposit yields to decrease soon, with loan rates following later. Shukurov says reduced loan rates will enable companies to invest borrowed money in new projects, update equipment, increase production capacity or make the range of services more diverse. He also suggests that cheaper loans will push investors to explore alternative investment strategies, such as lending secured by collateral.