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Russian companies are relying on hope: a reduction in the key interest rate in sight!
The discussion about key interest rate cuts in Russia and the euro zone: economic perspectives and inflation effects analyzed.
Russian companies are relying on hope: a reduction in the key interest rate in sight!
On June 5, 2025, Russian and European economic actors will address pressing questions about monetary policy and inflation. Alexander Shokhin, President of the Russian Union of Industrialists and Entrepreneurs (RSPP), expressed optimism about the possibility of a key interest rate cut. He pointed to both macroeconomic and subjective arguments in favor of a lower interest rate. Entrepreneurs in Russia are hoping for a rate cut at the next meeting of the Central Bank, scheduled for June 6.
Shokhin estimates a key interest rate of 19 to 20 percent to be optimal and warns of the negative effects of too high an interest rate on the economy. A reduction in the key interest rate to 19 percent could help stabilize growth rates and minimize the risks of defaults and bankruptcies. In addition, budget resources could be saved that could be used for important support measures.
Inflation developments in Russia
Currently, forecasts for the Russian economy see a positive impact on key economic indicators as a result of tight monetary policy. The Bank of Russia noted that this policy contributed to the strengthening of the ruble in the first quarter of 2025. At the same time, the average inflation rate fell to 8.3 percent during this period. However, Economy Minister Maxim Reshetnikov warned of an impending slowdown in the economy. In order to achieve GDP growth of 3 percent, an easing of monetary policy is essential.
The slowdown in the growth rate of consumer demand and the decline in production in many real sector industries increase the urgency of cutting key interest rates. Given these challenges, there is interest in adjusting interest rate policy not only from a business perspective, but also for broader economic reasons.
European interest rate policy and inflation
However, inflation in the euro zone rose above 10% at times in 2022, which was partly due to production and delivery stops during the corona pandemic and the Ukraine conflict. Unions are demanding high wage increases due to inflation, which could increase price pressure. ZEW's Friedrich Heinemann warned that Germany could face stagflation in 2024, implying mini-growth with high inflation.
Overall, it is clear that both the Russian and European economic landscapes are facing challenges that are characterized, among other things, by inflation and the necessary adjustment of monetary policy. Central banks' next steps could be crucial to stabilizing the economic climate.