Economist Georgy Ostapkovich clarifies current cuts in savings rates amidst economic shifts.
Interest rates on Russian bank deposits are beginning to fall like dominoes. Despite the Central Bank`s key rate remaining high at 20% annually, the most attractive deposit offers for Russians have already dropped below 18%, specifically to 17.91%. This raises concerns about the potential for a mass outflow of funds from credit institutions if the regulator proceeds with an anticipated 2 percentage point cut in the key rate at its upcoming July meeting.
Photo: Gennady Cherkasov
This scenario cannot be ruled out. Some currency market analysts suggest that by the end of this year, banks could lower deposit rates to 14%. It`s worth recalling that earlier, most experts believed that while banks would preemptively respond to a Central Bank key rate reduction, there wouldn`t be a sharp collapse; they predicted an average deposit rate of around 19% by December.
However, the current rate is already below 18% six months before year-end. The reduction is particularly noticeable for long-term deposits, whereas rates for one-to-three-month deposits remain relatively high.
The optimal time for deposits was December 2024, when the maximum rate reached 22.28% annually.
«This situation is entirely logical,» states Georgy Ostapkovich, Scientific Director of the Center for Conjunctural Studies at HSE University. «If the key rate decreases, both deposit and lending rates follow suit. This is a global phenomenon. The current rhetoric from government economic leaders suggests that the rate should significantly decline, with expectations of a drop from 20% to 18% annually. Banks are adjusting to this outlook by rapidly lowering deposit rates. Unfortunately, they are not reducing loan interest rates as quickly.»
Will Russians massively withdraw funds from their bank accounts?
«Financially literate citizens who understand the difference between inflation and returns will not rush to withdraw their money. According to the regulator`s forecasts, annual inflation in 2025 will be around 7.5-8%. If a deposit rate falls below this level, then it makes sense to withdraw, but only after fully receiving the accrued interest on the deposit.»
«Currently, your deposit yields more than double the inflation rate. With inflation projected at 7.5% and your deposit at 16-17%, such scenarios where deposit rates significantly outpace inflation are not common.»
«Normal people will not close their accounts. However, if there`s a runaway decrease in the rate, then it`s worth considering whether opening a new account makes sense under such a trend, or perhaps shifting towards consumption, for instance, making a significant purchase.»
Meanwhile, Natalia Milchakova, a leading analyst at Freedom Finance Global, believes that the Bank of Russia will reduce the key rate at a slower pace, potentially reaching 16% annually by year-end. She states, «Following the Central Bank`s July 25th meeting, we anticipate a rate reduction to 18-18.5% annually. On this backdrop, average mortgage rates in July might drop to 25-26% annually, and consumer loan rates to 38-40% annually. Deposits could still be opened at 15.5-17.5%, which would continue to protect savings from inflation. By year-end, we expect average mortgage rates to be within 23-24%, consumer loans in the 36-38% range, and deposit rates in the 13-15% corridor, with annual inflation around 8%.»
