Key rate cut risky for economy

Credit: Evgeniya Novozhenina | RIAN

The Russian Central Bank once again lowered its key rate, which is expected to result in lower interest rates for deposits and loans, Vedomosti reports.

Senior officials of the megaregulator decided to cut the key rate for the sixth time, down to 6%. Central Bank Governor Elvira Nabiullina warned that the key rate could be lowered again after the next meeting.

Currently, the key rate is at its historic low. Back in 2010, it reached 7.75% for a short period of time and started growing again. The cut is due to an abnormally low inflation rate in Russia.

Experts note that this development will bring about lower interest rates on deposits and loans, including mortgages. This may happen quite soon. Sergei Khestanov, economist and Associated Professor at the Russian Academy of National Economy and Public Administration (RANEPA), believes that the response from the loan and deposit markets – as well as from the bond market – is reasonable and predictable. However, this situation has both pros and cons.

“An inflation rate this low is not common for Russia. The falling interest margin is ‘roasting’ the profitability of many banking products. So it would be better if the inflation rate (and the key rate) grew a little bit,” the expert noted.

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