The Central Bank of Russia is set to convene on June 6 to determine the future of the key interest rate, with analysts suggesting two primary scenarios: maintaining the current rate of 21% or implementing a slight reduction.

Experts are divided on the likely outcome, citing factors such as inflation, economic stimulus from military spending, and the need to foster savings.

Some economists believe a rate cut is warranted, arguing that current inflation levels justify a decrease. Ilya Fedorov from BCS World of Investments suggests a compromise reduction to 20%, citing inflation below the Central Bank’s target for the second quarter. He also points out that the real rate, the key rate minus inflation, is significantly higher than in December.

However, others caution against a drastic reduction, emphasizing ongoing inflationary risks and the impact of military spending on the economy. Economist Vasily Koltashov highlights the continued high level of military spending, which stimulates the economy but necessitates caution from the Central Bank in its monetary policy.

Alexei Krichevsky, a financial expert, believes the Central Bank faces a challenging situation, where any decision could lead to unfavorable consequences. He notes that the high key rate is detrimental to businesses, forcing them to take out loans at high rates, which diminishes profit margins. He also points out that lowering the rate may not effectively curb inflation due to upcoming indexation of housing and communal services tariffs.

Koltashov believes that the Central Bank’s current strategy promotes a savings model among the population. He adds that deposit yields exceeding housing price growth increase confidence in savings. The Central Bank might slightly reduce the rate to acknowledge slowing inflation. The purpose of a high rate is to act as a “shield” against economic instability.

Krichevsky predicts that the Central Bank will likely maintain the rate at 21%. If the rate remains unchanged, the Central Bank will probably begin to soften its rhetoric.