The Central Bank is ready to give up the rate: the “key” may be lowered again on July 25

At the meeting on July 25, the Central Bank will almost certainly lower the key rate, the only question is by how much. Analysts are leaning towards two scenarios: either to 18% from the current 20%, or a less radical option – to 19%. Both of these decisions will mean that the trend towards slowing inflation that has developed in recent months has outweighed the pro-inflationary risks in the eyes of the regulator.

Meanwhile, in the first week of July, as a result of indexation of housing and communal services tariffs, the dynamics of consumer price growth predictably jumped to 0.79%, after the previous weekly 0.07%. Then a decline followed, and in the period from July 15 to July 21, weekly deflation was recorded - minus 0.05%, for the first time since September last year. Annual inflation in Russia as of July 21 slowed to 9.17% from 9.34% as of July 14. Rosstat has been recording this trend for the third month in a row. As the Bank of Russia noted in the July bulletin "What the trends are saying", it is important to ensure that it is maintained and does not weaken even in the conditions of a large spread in the dynamics of prices for individual categories of goods and services.

The sustainability of the trend is an absolute priority for the Central Bank, which traditionally does not react to short-term price fluctuations. The second key factor for it (and in contrast to the previous one) is the obvious risk of overcooling of the economy if the rate is maintained at the current level. It is important to understand: an indicator of 18% or even more so 19% changes little for the real sector, meaning increased rigidity of monetary conditions, and the inaccessibility of borrowed funds. Economic realities require the Central Bank to be especially careful - banks are massively recording an increase in the number of debtors and a deterioration in the solvency of the population and businesses. Accordingly, the requirements for borrowers are growing, and loan rates remain high.

"The Bank of Russia has gained space to ease monetary policy (MP)," says Denis Astafyev, head of the fintech platform SharesPro. "Annual inflation has slowed to 9.17%, and inflation expectations remain stable. If the regulator considers the trend sustainable, it may well reduce the rate to 18% per annum. For the population, this will mean a gradual decrease in the yield on ruble deposits. In the coming months, rates on annual deposits may drop to 10-11%."

As for interest rates on loans, primarily consumer loans, they will react later: the effect may become apparent by autumn; mortgages will still depend mainly on subsidized programs. As for the ruble, the Central Bank's decision will have almost no effect, Astafyev believes: support in the form of export sales and high real return on assets will keep the rate at least within the range of 82-84 per dollar.

"The Central Bank will act as carefully as possible by reducing the rate to 19%," believes Alexander Shneiderman, head of the customer support and sales department at Alfa-Forex. "The 'minus one percentage point' tactic looks the most balanced, since it will not create shocks for the economy and will allow us to reach the 16% mark by the end of the year in a fairly comfortable mode. This decision is facilitated by the slowdown in inflation processes - despite the fact that the inflation rate is still far from the target of 7.6% announced by the Ministry of Economic Development."

In addition, Shneiderman argues, the federal treasury needs more intensive replenishment with revenues from raw material exports. In connection with the lowering of the price ceiling for Russian oil from $60 to $47.6 per barrel, counterparties may demand an even greater discount for the volumes sold - while the logistical costs for oil companies are becoming heavier every day. The easing of the monetary policy will allow the ruble exchange rate to weaken slightly, without greatly affecting the interests of importers in the short term.

"It is logical if, against the backdrop of a steady weakening of inflationary pressure, the Central Bank lowers the rate to 18% per annum," says Vasily Girya, CEO of GIS Mining. "At the same time, the recent weekly deflation of 0.05% can be regarded as a one-off episode, rather than a stable trend. As for the consequences for bank depositors, they will be moderate. Deposit rates have been falling for several months now, and this will continue in the future. About a week after the Central Bank meeting, banks may update the terms of deposits, but I do not expect any jumps. Interest rates on loans will decrease even more slowly: here, banks maintain a large margin."

The easing of the monetary policy will have a neutral or moderately negative effect on the ruble: if the tax period and stable oil prices are maintained, the currency market has already factored this decision of the Bank of Russia into the exchange rate, Vasily Girya argues. However, by the end of July the dollar will be able to return to the 80 ruble region.

"The most likely scenario is a rate cut to 18%," says Andrey Lossan, an analyst at the financial marketplace Sravni. "In this case, by the end of summer, we can expect a reduction in rates on short-term deposits to 13-14%, and on annual deposits to 15-15.5%. - Rates on consumer loans will probably remain in the range of 36-38% per annum, while minor adjustments are possible for car loans and mortgages - no more than one or two percentage points by the end of the year."