The Bank of Russia raised the key rate to 19% per annum

The decision of the Central Bank of the Russian Federation to raise the interest rate is explained by the increase in inflation and consumer demand.

“Current inflationary pressures remain high. Annual inflation at the end of 2024 is likely to exceed the range forecast in July of 6.5-7.0%,” the Bank of Russia said.

The Central Bank’s decision was almost in line with the consensus forecast prepared by RB.RU based on the opinions of 11 experts and analysts surveyed: 18.5%. Seven analysts predicted that the rate would remain at 18%, the rest expected it to rise to 19-20%.

On July 26, the Bank of Russia raised the key interest rate by 200 bps to 18% per annum. This increase was the first since December 2023. Since then, the regulator has kept the rate unchanged. The level of 18% is the highest since April 2022. The highest rate was in March 2022, then it was raised to 20%, then monetary policy was eased and the rate was reduced to 7.5%, at this level it remained from September 2022 to July 2023.

Experts interviewed by RB.RU point to the diverse impact of the key rate on the development of small and medium-sized businesses (SMEs) in Russia. Vyacheslav Mishchenko, an expert from the Presidential Academy and a visiting professor at Torquato di Tella University, believes that due to the high key rate, entrepreneurs prefer to place available funds on deposits rather than investing in business development.

Mishchenko believes that high rates may encourage companies to look for an alternative to bank loans, resort to crowdlending or attract direct investments. Anton Ustimenko, a partner at B1, adds that against the background of an increase in rates by the Central Bank of the Russian Federation, the Russian IPO market is growing, “the appetite of companies for this type of financing is high.”

According to Maxim Pleshkov, chief bond analyst at Solid Broker, the upcoming rate increase will not have much of an impact on SMEs, as only those that pass on the costs to the buyer can afford to get a loan under the current conditions. For many working in highly competitive sectors, the current level of rates is already prohibitive.

Experts believe that further increases in the cost of money may reduce consumer demand, which will also negatively affect business.

On August 29, the Bank of Russia allowed the rate to rise to 22% in 2025, suggesting that inflation would rise to 15% due to a significant reduction in the supply of goods and services. The Central Bank plans to “significantly tighten” monetary policy (monetary policy).

“The key rate will average 20.0-22.0% per annum in 2025. In 2026, to limit inflation risks and ensure inflation returns to target, the Bank of Russia will also pursue a tighter monetary policy than in the baseline scenario,” reads the draft prepared by the regulator “Main Directions of the Unified State Monetary Policy for 2025 and the Period 2026-2027.”