Page 42 - bne IntelliNews Russia OUTLOOK 2025

growth and are threatening to cause a wave of bankruptcies in 2025 as interest payments eat up a growing share of corporate earnings.
The average key rate forecast has been adjusted upwards for the entire forecast period. Analysts now expect a median key rate of 17.3% per annum in 2024 (+0.2 pp), implying an average 20.0% rate in the final quarter of the year.
For 2025, the key rate is forecast to average 18.0% (+1.9 pp) and decline to 12.5% (+1.0 pp) in 2026, according to the CBR. By the end of the horizon, the rate is projected at 9.0%, higher than the median neutral rate estimate of 8.0%.
The decision to raise interest rates by 200 bp to 21% in October 2024 set the third interest rate record in a decade. The first was in 2014 amid the switch to a free-floating currency, when the regulator hiked rates to 17% (a rate cut followed two months later). The second was in 2022 following the full-scale invasion of Ukraine, when rates went up to 20%. That helped quell panic and stop the outflow of deposits from the banking system, and rate cuts began three months later.
This time, however, high interest rates look set to be around for much longer. The current rate-hike cycle began in August 2023 following the weakening of the ruble and growing inflation. Rates have risen 5 percentage points to the current 21% since they reached 16% at the beginning of 2024.
Impact of high interest rates in 2025
Inflation rose to 9.3% y/y at the start of December, well ahead of the CBR full-year forecast of 8.6%. The Centre for Macroeconomic Analysis and Short-Term Forecasting (CMASF) believes that money in Russia is too expensive, and the CBR is also strangling the economy with a tight monetary policy – a view shared by most big business.
In its November analytical note, the institute recommended lowering the key rate to 15-16% by mid-2025 to prevent stagflation of the economy. However, Russia cannot get out of stagflation using the US "Reaganomics" scheme of the 1980s through attracting foreign investment, which means it is left with a shock, with a decline in production, bankruptcies and mass non-payments similar to the Mexican recession of the beginning of the century.
In another note "On the Impact of Changes in the Key Rate on Industrial Inflation and the Likelihood of Corporate Bankruptcies” the CMASF concluded that it is the rate that has the inflationary effect and its contribution to inflation is even higher than that of wages: 4.5-5.5
42 Russia OUTLOOK 2025 www.intellinews.com