Key rate - what was it? What risks did the Central Bank encode in its message
The disappointment of the month was the Central Bank's decision to reduce the key rate by only 1%, to 17% per annum. Formally, the Central Bank demonstrated a softening of monetary policy, but in fact it indicated that the economy would still be in turmoil and the time for positive changes had not yet come.
On September 12, it was not for nothing that the regulator made a third, albeit tiny, reduction in the “key” for the third time in a row.
For more than two years, the Central Bank and its head Elvira Nabiullina have been under severe administrative and political pressure. The largest industrialists, bankers and developers are participating in the fight under the carpet, for whose business “expensive money” has really become too expensive.
Shortly before the September meeting of the Business Center, VTB CEO Andrey Kostin directly stated that the key rate needs to be reduced at a rapid pace.
“I have my own interests in this, because for us this is a big loss,” the banker clarified (quoted by RIA Novosti).
The all-powerful lobbyists, as well as experts, had virtually no doubt that Elvira Nabiullina had wavered. However, on September 12, the iron lady threw in only a psychological pill - a symbolic rate reduction of 1%, which has no practical meaning. After the results of the meeting were announced, Nabiullina finished it off with her comments. According to her, the Central Bank discussed the option of leaving the key rate at the previous level - 18%.
Bank of Russia Chairwoman Elvira Nabiullina and VTB Bank Management Board Chairman Andrey Kostin. The banker calls on the Central Bank to reduce the rate at a rapid pace. Photo: Petr Kovalev. TASS
Following the meeting, Elvira Nabiullina praised the Central Bank's efforts, noting that inflation has significantly decreased since the beginning of the year. Incidentally, Russians did not notice this - inflation expectations are growing , which also affects the "key". Well, and then the head of the Bank of Russia announced a list of risks.
The first and most acute signal is a budget deficit. The larger the cash gap, the higher the key rate.
Over the first eight months of this year, the budget gap has grown to 4.2 trillion, or 1.9% of GDP, although at the beginning of the year the plan was to keep within 0.5% of GDP. Most likely, by the end of 2025, the income and expenditure items will be revised for the second time, and then the projected treasury deficit will be increased again. The head of the Central Bank practically directly stated this: the adjustment of the monetary policy (MP) will depend on the changed budget parameters.
A special military operation requires huge expenditures. And the parameters for revising the 2025 budget have not even been announced yet. Only Finance Minister Anton Siluanov has hinted that belts will soon have to be tightened, and he did not rule out increasing the national debt. Simply put, the Ministry of Finance has decided to enter the borrowing market even more actively.
If we briefly translate Elvira Nabiullina's reserved message into human language, it means the following: there is no money, and we do not know how the Ministry of Finance is still holding on. It is not known what will happen with the 2026 budget, and the budget is an important player for monetary policy.
Finance Minister Anton Siluanov can only be saved by the well-known advice: there is no money, but you hold on. Photo: Evgeny Messman. TASS
There are inflationary risks and not everything can be calculated - this is the second message from the head of the Central Bank. Elvira Nabiullina made it clear that these problems are so serious that further easing of the monetary policy will have to wait.
The Central Bank has no answer to the question of what will happen with geopolitical risks and the external situation that puts pressure on Russian exporters. And the US President Trump threatened to hit with new sanctions and unprecedented duties the day before in order to "wean" China and India off buying Russian oil.
Financial analyst and author of the Finversia project , Jan Art, explained the difficult decision for the Central Bank, taken on September 12, as follows:
— On the one hand, there was a need to lower the ruble and significantly lower the key rate in order to support the economy, otherwise — stagnation or recession. On the other hand, there was a need to keep the key rate high, not lower the ruble and sacrifice GDP growth for the sake of fighting inflation. That is, the choice was “either-or”: either a strong ruble and less inflation, but without GDP growth, or GDP growth and happiness for exporters, but then a weakening ruble and a new round of price increases.
State Duma deputy, deputy chairman of the State Duma Committee on Economic Development, Doctor of Economic Sciences Mikhail Delyagin harshly condemned the Central Bank's cautious maneuver. The two-digit key rate, the economist deputy stated, means the continuation of all destructive trends and a further decline in the economy.
Olga Belenkaya, head of the macroeconomic analysis department at FG Finam, adds that the latest meeting of the Central Bank has upset experts and the range for further reduction of the key rate is being reduced to 14-17% (in the absence of new shocks).
"But given the Central Bank's tougher stance, the likelihood of the rate being cut to 14% this year has, in our opinion, decreased. The most likely outcome is a reduction in the key rate by the end of the year to 15-16%," Olga Belenkaya does not rule out.
In general, hopes for a favorable economic scenario can be safely postponed until better times.
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