Russian Central Bank maintaining key rate at current level could create risk of 'autumn bankruptcies' owing to accumulated negative economic pressure - RSPP president
MOSCOW. July 22 (Interfax) - There are arguments against the Central Bank of Russia lowering the key rate, though this decision could be fraught with the risk of bankruptcies and a halt to ongoing investment projects, according to Alexander Shokhin, president of the Russian Union of Industrialists and Entrepreneurs (RSPP).
"On the one hand, we understand the arguments that the Central Bank might use if the board of directors decides not to lower the rate. The fuel market situation has ceased deteriorating, though the price shock was rather severe, and it could take some time for the market situation to normalize fully. Federal budget expenditures and the deficit could increase in 2026 based on Electronic Budget data. These are precisely the factors that could negatively affect the rate reduction," the RSPP's press service quoted Shokhin as saying.
"On the other hand, our surveys of RSPP members have documented a contraction in demand - and other business associations have similar estimates - while companies continue to remit significant loan payments. Therefore, maintaining the key rate at the current level could create the risk of 'autumn bankruptcies' owing to the cumulative effect of negative economic factors," Shokhin said.
Shokhin noted that the high key rate creates significant risks for import-substituting projects.
"They are currently in a particularly vulnerable position, as high investment activity in previous years, including through expensive borrowing, has compounded the economic slowdown. However, these projects are currently facing not so much the problem of financing procurement and commissioning - the equipment has been ordered, often installed, and launched - but rather a lack of orders for finished products," Shokhin said.
Shokhin said that the freeze in investment activity in Russia has already become an obvious fact.
"The current surge in investment spending, which is recorded in statistics, is primarily owing to unplanned restoration work for obvious reasons, and not at all to economic recovery. Companies are taking out loans only to patch up holes, not for development," Shokhin said.
Shokhin recalled that President Vladimir Putin recently said that a cut in the key rate "should and would be a natural process based on macroeconomic indicators and economic stability."
"The RSPP fully shares and supports the president's approach. Specifically, reducing the key rate should be a natural process, synchronized with real macroeconomic dynamics. We believe that decelerating inflation and cooling in lending activity have already created objective preconditions for easing monetary policy, though we are preparing for all possible scenarios, including [the Central Bank] maintaining it [the key rate] at the current level," Shokhin said.
