Economist Explains Consumer Spending Habits Ahead of Central Bank Meeting

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Bank of Russia to Hold Interest Rate Steady at 14% Today, Expert Predicts

Today, the Bank of Russia will convene to decide on its key interest rate. Economist Evgeniy Kogan expects the regulator to keep the rate unchanged at 14%, although there is also a possibility of a 0.25 percentage point cut on the table.

According to Kogan, the main obstacle to easing monetary policy is high inflation expectations. Both households and businesses focus not on nominal rates but on real rates, adjusted for inflation. For example, a deposit offering 12.9% would only attract savers if they do not expect inflation to exceed that level. Otherwise, people tend to spend their money before it loses value. The same logic applies to lending: businesses are more inclined to borrow if they anticipate significant price increases in the future.

Kogan points out that over the past year, nominal interest rates have decreased, but inflation expectations have remained unchanged. As a result, monetary conditions have become less restrictive. This is reflected in the credit market dynamics: the volume of loans continues to grow by more than 10% annually. Such rapid growth leads to aggregate demand outpacing supply, creating risks of accelerating inflation. To slow down credit portfolio expansion, the rate needs to be kept high, Kogan emphasizes.

He predicts a muted market reaction if the rate is held steady. However, in the event of a 0.25 percentage point cut, stock and bond prices could rise.