Russian Economy Faces Slowdown, Sber CEO Calls for Deeper Interest Rate Cuts

The Russian economy is experiencing a slowdown, prompting Sber CEO Herman Gref to urge deeper interest rate cuts to stimulate recovery and prevent a recession. Despite the country’s resilience in the face of Western sanctions, the economy’s growth is projected to slow to 2.5% this year, according to the Economic Development Ministry. The central bank’s medium-term forecast is even more cautious, predicting growth of 1-2%.

Gref, speaking at the Eastern Economic Forum in Vladivostok, stated that the current key interest rate of 18% needs to be reduced to around 14% by the end of the year. However, he believes this would still be insufficient, arguing that the economy can only recover with interest rates at 12% or lower, given current inflation levels. Gref described the second quarter as a period of “technical stagnation” and emphasized the need for timely measures to avoid slipping into a recession.

Gref’s concerns were echoed by Economic Development Minister Maksim Reshetnikov, who noted that growth momentum is weakening faster than expected, prompting the ministry to revise its forecasts. Earlier this year, Reshetnikov cautioned that the country was close to recession and stated that the outcome would depend on policy choices, particularly interest rates.

Russian President Vladimir Putin expressed confidence that inflation, currently estimated at 8.8%, could be brought down to a minimum while keeping the economy on an upward trajectory. However, he warned that sharp cuts to the key rate could trigger higher prices. The Bank of Russia is set to hold its next policy meeting on September 12, where it may consider reducing the interest rate to 10.5% next year if inflation falls to 4%.

A weaker ruble towards the end of the year could ease risks for exporters and support the budget, according to Gref. The Russian economy’s ability to navigate the current challenges will depend on the effectiveness of its monetary policy and the government’s ability to implement measures to stimulate growth. The upcoming policy meeting will be closely watched as investors and economists await the central bank’s decision on interest rates.