Russia Cuts Interest Rates by 100 Basis Points to Stimulate the Market, But Retail Investors: Is That All?

Today, the Central Bank of Russia made a big move—​​cutting interest rates by 100 basis points​​, with the key rate reduced from 21% to 20%. However, the Kremlin poured cold water on this: ​​this slight adjustment is not enough to make a difference!​​ It seems to be a move to stimulate the market, but in reality, it hides deeper intricacies—Is this operation really a booster for the economy or is it digging a new pit for retail investors?

​​1. Cutting Interest Rates by 100 Basis Points: An Apparent Market Stimulus but Actually Controlling the Market​​

This recent interest rate cut by Russia appears favorable, but in reality, it is ​​forced action​​. The April inflation rate of 6.2% seems to be cooling down, but the core inflation rate remains stuck at a high of 4.4%.

The ruble exchange rate is even more surreal: the USD to ruble exchange rate has skyrocketed from 1:115 at the beginning of the year to 1:79, with the apparent appreciation backed by capital controls and oil exports.

From the Retail Investor's Perspective​​:

Cutting interest rates by 100 basis points? When the interest rate was 21% last year, corporate loans were directly halved; now, a 1% cut doesn't even offset the interest.

The ruble's appreciation relies entirely on ​​“mandatory currency conversion”​​—foreign exchange earnings from oil companies must be converted to rubles, essentially a method of ​​draining the real economy​​ for the sake of currency appearance.

Russia's RTS index has risen by 25% this year? ​​Military stocks are driving the market, which has nothing to do with the common people's consumption.

​​Data Contradiction​​:

In Q1 2025, GDP growth plummeted from 4.5% to 1.4%;

Corporate loan demand has shrunk for eight consecutive months, with private investment down 37% year-on-year;

Oil prices have fallen by 23% this year, and Russia's fiscal deficit has soared to 5.2% of GDP.

​​2. Policy Dilemma: Unable to Raise or Lower Interest Rates​​

The Central Bank of Russia is now in a difficult position:

​​Raise Interest Rates?​​ When the interest rate was 21%, enterprises simply gave up, and the loan scale shrank by 42%. If rates are raised again, the economy will go directly into ICU;

​​Cut Interest Rates?​​ Inflation expectations remain high at 13.4%. If not handled carefully, prices will soar directly, with the ​​ruble depreciation→import inflation→price collapse​​ death cycle looming ahead.

After this year's rate cuts, the ​​loan interest rate still remains high at 18%​​, and the financing costs for small and medium-sized enterprises are still 30% higher than before the war.

​​Institutional Calculations​​:

The Kremlin's real calculation is to ​​“exchange time for space”​​, waiting for a ceasefire between Russia and Ukraine to attract Chinese investment to fill the gaps.