Interest rates: analysts expect a pause, Putin demands a cut

The Central Bank is set to meet on July 24 to discuss interest rates as inflation rises sharply, driven by fuel shortages. Vladimir Putin has called for a rate cut, describing it as "a natural process." Anatoly Aksakov, head of the Duma's financial market committee, anticipates a 25 basis point reduction to 14%. Yet inflation data indicates the opposite: easing monetary policy seems unlikely.

In June, inflation jumped from 2% to 10.6%, a temporary surge largely attributed to fuel shortages. Excluding volatile components, inflation would have stayed below 4.9%. Central Bank analysts warn the fuel shock is spilling into other prices, as rising fuel costs translate into higher prices overall. The bank's decision is based on secondary effects and inflation expectations.

Despite reassurances, analysts expect inflation to reach 6.2% this year, up from 5.3% previously, and 4.6% next year, up from 4.4%. The average expected key rate in 2028 is 10% (up from 9% this year). The business climate indicator dropped to -3.6 points from 0.9 in June, with firms' short-term demand expectations declining and price expectations improving after five months of decline.

The Central Bank's data suggests a pause in rate cuts is more probable. A symbolic cut, given the current figures and uncertainty, could damage the bank's reputation as a prudent rate-setter, further eroding confidence.