Russia's central bank cut its main interests by 20% on Friday, the first cut since 2022 as Vladimir Putin's war economy cooled.
"Domestic demand continues to outperform the economy's ability to expand the supply of goods and services, but Russia has gradually resumed a more balanced growth path," CBR said in a statement.
The move was expected by most economists reported by Bloomberg, driven by wartime spending after the decline in inflation and highlighted the end of a two-year surge in GDP.
Several economists told the Financial Times that annual inflation fell to 9.8 cents in June after months of double-digit growth.
“The CBR clearly shows that its main focus is the steady decline in inflation,” said Olga Belenkaya, head of macroeconomic analysis at FG Finam, Moscow.
But the bank stressed Friday’s cuts would not mark the beginning of a rapid slowdown, adding that it “keeps monetary conditions when necessary, returning inflation to its 2026 4% target.
CBR notes that despite the slight relief of inflation risks, they still outweigh the power that would lead to medium-term consumer prices.
Janis Kluge, a Russian economic expert at the German Institute for International and Security Affairs, said the bank found itself in a "very difficult attraction." He added that while inflation is easing, its endurance is uncertain and non-food prices are falling, food costs are still rising and reaching the poorest and most difficult.
Russia's economy has been hot since the summer of 2023, as government-related spending soared. CBR Governor Elvira Nabiullina has previously compared this situation to a car with a "full speed racing" warning that "it can be fast, but not long."
To control the total war in Ukraine, the speed of CBR and curb inflation have increased by about 35% since October last year.
However, high borrowing costs can be based on the needs of the company and consumers. "Retail loans have basically stopped, corporate loan growth has become trivial, but it's the medicine to take," said Oleg Kouzmin, chief economist for Renaissance Capital, Moscow.
Now, the challenge is a cooling economy. "This is inevitable, but we must take careful action to avoid excessive cooling, such as in refrigerants," President Vladimir Putin warned in March.
Russia's GDP grew by only 1.4% in the first quarter of 2025, which was a significant drop of 4% in the previous two years, according to Rosstat, the main Russian statistical agency. Since 2022, seasonally adjusted growth has even been negative.