Russia keeps rates high amid inflation and overheating risks.

April 27 - The Russian Central Bank announced on the 25th that it would keep the benchmark interest rate unchanged at 21%. This is the fourth consecutive time since last October that the Russian Central Bank has maintained this historically high level, reflecting a continuation of tight monetary policy in the face of high inflation and economic overheating pressures.

High Inflation Maintains Policy Tightening

The Russian Central Bank stated that although inflationary pressures have slightly eased, they remain elevated, and domestic demand continues to grow faster than the capacity to supply goods and services. Based on current economic data, the Russian economy has begun to transition gradually towards balanced growth, but the inflation target is still far from being achieved.

Unlike previous statements, this time the Russian Central Bank did not mention the possibility of further rate hikes but instead clearly stated that it would flexibly adjust interest rate policy based on the speed and sustainability of inflation rates and expectations, aiming to restore the inflation rate to 4% by 2026.

According to InFOM survey data, as of April 21, Russia's annualized inflation rate reached 10.3%, with perceived inflation by residents rebounding to 13.1% in April alone, and business price expectations as high as 19.8%, far exceeding normal levels seen between 2017 and 2019. Analysts noted that although there are signs of slowing inflation, it's still too early to conclude that this trend is sustainable, with ruble exchange rate volatility and international oil price changes remaining significant variables.

Bank of Russia Governor Elvira Nabiullina pointed out that escalating tariff wars and adjustments in global trade structures could trigger a chain reaction in the Russian economy, posing new significant risks. Meanwhile, although the ruble's strengthening in the first quarter alleviated imported inflation to some extent, its sustainability remains in question; if the exchange rate stabilizes, it could create room for moderate rate cuts in the future.

Signs of Economic Overheating Persist, Rate Cut Window Not Open

Despite heated discussions in the market about future rate cuts, some institutions predict the Russian Central Bank may slightly lower interest rates to 19% at the next meeting in June. However, there are also views suggesting that high rates may persist until mid-2026. According to the Russian Ministry of Economic Development, the inflation rate is expected to decrease to 7.6% by 2025, potentially falling to 4% by 2026.

Data shows that domestic demand in Russia remained strong in the first quarter of 2025. Although retail and corporate credit were suppressed by high rates, household incomes and budget spending continued to grow. The labor market tension, though slightly alleviated at the margins, still saw wage growth outpacing productivity, increasing cost pressures on businesses.

Experts generally believe that the Russian economy has developed a certain "tolerance" for high interest rates, and further rate hikes may instead stifle economic development. Meanwhile, the normalization of loan demand, the slowdown in consumer price growth, and declining inflation expectations, though providing potential room for rate cuts, currently lack sufficient evidence to support a trend towards deflation.

Economists point out that if geopolitical situations improve and international oil prices stabilize, Russia may start a gradual rate-cutting cycle in 2026. But if global trade tensions intensify or domestic fiscal expansion exceeds expectations, high rate conditions may last longer. In the future, the delicate balance between inflation and economic growth will be crucial for adjustments in Russia's economic structure.

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