The Duran Podcast - Russian economy interest rate cut

Episode Date: July 31, 2025

Russian economy interest rate cut

All right, Alexander, let's do a follow-up on the state of the Russian economy because we got an announcement from the central bank the other day that they will be lowering the interest rates by two points from 20% to 18%. And this is a definite signal that there will be more rate cuts. I believe, I think you said it as well in our previous video when we were talking about the Russian economy that if, If a rate cut is done in summertime, then most likely we'll be looking at more rate cuts come the fall. And the situation in the Russian economy starting to stabilize from where it was or from where it is during the summer with high interest rates, inflation and a very strong ruble. So I think they're going to also try to soften the ruble a bit as well. Anyway, what are your thoughts on what the central bank announced? That is exactly right.

I mean, when we did our previous program about a week ago, we said, we said that there would probably be rate cuts on the 25th of July. Because Nebula, the central bank chair is, you know, very much inflation hardliner. and, you know, tends always to have a structural bias towards high interest rates. There was an off chance that she'd delay it to the autumn. But we also said that if she did that, there would be an absolute outcry. Many people would be very angry. It looks like the economy contracted in June.

If she continued with the current high interest rate policy, we would probably see the contraction developed, into an outright recession. And that would be very, very politically difficult. And it would probably put her own job at risk. That was what we said in our previous program. Well, in the event, she cut interest rates by 2%. And that was, again, what we suggested was the most likely thing that she would do. And she did it. And she gave a press conference. It was a very interesting press conference. And she in fact made it clear that interest rates would be going down further in the autumn.

And the expectation now is that we could see interest rates by year end at around 13%. I mean, that might be a bit higher, unlikely, given that we're talking about nebule in it, to be lower, but 13% interest rates by year end is possible. Now, what made this decision, I think unavoidable, is that we were starting to get inflation readings, which suggested that inflation, actual, you know, monthly, daily inflation in June had fallen to 4% rather than the 5% that we believed when we did our program. and in fact, over the previous week, we actually had deflation in Russia. In other words, prices overall were falling. Now, in the summer, generally in Russia, inflation tends to fall. There's the harvest.

There's a big rush of fresh food to the shops. In Russia, people still buy a lot of their food fresh. that's very well organized with markets and things of that kind. And when we talk about markets, I mean, it's people have to be quite clear. I mean, these are extremely well-organized and very modern operations. I mean, you've seen them yourself. You know what I'm talking about. But the result is that in the summer, there's a lot of fresh food comes available.

The harvest this year looks like it will be a good, harvest, not exceptional, but overall pretty good. So the result is that in the sum of prices tend to either grow more slowly or sometimes they even fall. If she'd kept interest rates at 20 percent, not only would prices have fallen much further, much faster, because as I said, we were already into contraction territory. But we might have had. serious problems with a deflation situation beginning to become built in and that could have caused more problems in the autumn. It might have made it more difficult to get the economy moving again in the autumn and might have obliged Nebula to cut interest rates even further than she basically

wants to go. So she took what I think is the correct decision. She cut interest rates by 2% and we're going to have more cuts in the autumn. And we will probably get overall growth in the economy this year, but not very high growth, one to 2% growth. Growth next year will probably be high. And the ruble? And the ruble, she will certainly want softened. Certainly exporters wanted to be softened to compensate for the lower energy prices and in order to make Russian industrial goods more competitive on world markets. Because Russia is no, this is, I think, something which people don't quite understand, but the balance of the economy has, I mean, it's been changing for a while, but the last three years have accelerated the pace of change in the economy. It is increasingly becoming

an economy which is more focused on manufacturing rather than just energy extraction. Manufacturing growth over the last three years has been much higher than previously, and it's broad-based. It's not as many people believe focused in the defense industries. there's particular need to get car production, passenger car production up, but Russia also has plans to start exporting passenger cars. So if you're going to start doing all of that, you absolutely do not want a strong ruble at this time. And again, I know people, some people always measure the strength of the economy on the basis of the international trading weight of a currency. But But that's not been the way the Russians have approached things up to now. With inflation coming down,

with interest rates coming down, with a low oil price, the Russians want the ruble to fall. And that is what will happen. So Putin the other day, he identified Russia's biggest problem going forward for the actual, for the country for the Russian Federation, their biggest challenge and their biggest problem going forward, which is something that just about every country in the collective West is challenged with. We saw it when we were in Hungary and actually the government officials for Orban. They talked to us about this problem in great detail and at great lengths about how they're trying to remedy the problem.

But Russia is also plagued by this problem. It affects the economy. It affects Russian society. And it's the demographics. Exactly. The birth rate. How is Russia going to deal with this? This is proving an enormously attractable problem.

And it isn't just Russia, by the way. I mean, and the Europeans, I mean, South Korea's demographic situation is absolutely terrible. I believe it's fallen below one, you know, the replacement, the level of children for families. Now, the average is below one. In other words, fewer of your children. Japan is in a bad way. China also. So it's proving very, very difficult to increase the birth rates. And I will say this, a few years ago, ten years ago, ten years ago, ago, people were talking about the demographic crisis in Russia. And they were talking less about Europe, but of course Europe is now not just got as bad as Russia, but in some countries

it's overtaken Russia in this regard. In fact, in many countries, it's overtaken Russia in this regard. I'm going to say I think perhaps the only country where they are gradually working to find a solution probably is Russia. Now there's various things that you need to do. One of them obviously is to establish kindergartens, and creches and support for families during the first five, ten years when the problem of having children is. is at its greatest. But I think the other big problem and the one that every country finds is that for many women, the cost of having children is to sacrifice career prospects. And once you start embarking on a career, that is a difficult thing to do. So that women tend to have their first child much later, than they used to do. Sometimes in their late 20s, in some countries in their 30s, trying to

reduce the age when families are established and when they start having children. That's probably the only way you can do it. If you're not going to do what we're increasingly doing in Europe, which is to import people and the United States, which is to import people from other countries and change the whole social and demographic balance in that kind of way. Now, I think the Russians have identified this problem. It's very typical of them, very methodical, and you could sense that they're working towards a solution for it. I think that probably at some point in the next couple of years,

we are going to see this being Russia a kind of plan for this sort of thing. you know, a kind of social, economic plan structured around how to address this. What I think Putin is saying, and he's absolutely right, is that the only way to deal with this problem is to make it the absolute number one priority, to prioritize it over all others, issues, and to acknowledge when doing so that this is going to be something that is going to start paying dividends in about 20 years time when any extra children that you produce start joining the workforce and producing and having children themselves. So, you know, this is going to be a big challenge, but it's the kind of thing, I will say it again,

that the Russians, because they tend to plan for the distance and because they've got enormous amounts of financial firepower behind them that they can that they're usually fairly good at doing. Yeah, the problem though is in the next 10 to 20 years what does Russia do? I mean, from the economic perspective, they're in need of workers. Yes. Right? Well, yeah, especially as they're taking a lot, a hard line against immigration. And they take, that's what I was going to say, and they're taking a hard line, yeah. They have to balance the need for workers as well as the need for security. Yes.

Or for the country as well because, you know, they do have that issue where in the next five to ten years, they're going to have to be extra vigilant against any type of sabotage operation and people coming into the country looking to destabilize it. Even once the conflict in Ukraine is over, the West is not going to stop in their efforts. to try and destabilize Russia. So they have to find that balance. Absolutely. And the economy demands people.

Absolutely. They're short of workers in many sectors. Well, one possible way is to import workers for reliable countries, North Korea, is being the obvious one. North Korea has an excess of people in terms of its economy. It is. So there are reports that some factories, especially in the Far East, are starting to import North Korean workers. It might be possible from other places too, but nobody seems to know which places and there isn't a plan for that. The major discussion is to move more and more production towards automation. So, you know, again, this will require some kind of a plan.

It will require heavy investments going forward. But again, you could argue that Russia has the financial power to do that with 14% debt to GDP ratio. It could probably do it. But anyway, this is what they're increasingly talking about. Putin has been holding one meeting after another talking about automation and how to, introduce robots and bring AI into use into scaling up manufacturing. We'll see what comes of it. There are other things I just would like to say, you know, we might want to return to that, but about the central bank and the way that it runs the economy. I'm aware that perhaps

in our previous programme, I might have created an impression that I have a somewhat negative view of Nubulinna and of the central bank and the way it manages things. And I have written articles critical of Nubuilina's decisions in the past. I would like to say that on balance, I think she is a very good central banker. I think that she does at the right time the things that the economy needs. And unlike central bankers in the West, she's prepared to admit her mistakes. So she's admitted, for example, that she cut interest rates too fast and too aggressively in the first half of last year.

Now, that's not something that you would see central bankers in the West do. She's kept the economy on a very even keel so that it's been able to absorb sanctions shocks very effectively. And she has steadily, over the time that she's been a central, been central banker, Russia's central banker, she's gradually brought inflation down. It's been a slow process, but then Russia has a massive inflation overhang, which in some respects extends back right back to the 1960s. So you can see that this is a huge. problem. And the other thing, and it goes directly to the point that we've just been discussing now, she has massively cleaned up the financial system. So banks in Russia, you know, in the early 2000s,

as late as 2010, were very, very shady institutions. There were the few big state banks, state-owned banks, spare bank, VTB, all of those. But there was a vast round. of so-called private banks, which were basically operated by various oligarch groups and even criminal organizations, which were basically draining liquidity out of the economy and were not able to make investment decisions. What Nehubulida did after she became a chief of the central bank is she cleaned them up. She closed down most of them. She made sure that those private banks that were left were properly viable and properly tested. And she has created a very, very strong banking system in Russia, certainly compared to what existed before. And she's managed to

make sure that this banking system overall is well capitalized. So going back to what we were saying about automation and investments in automation, she's steadily built up deposit. in banks. She's created a viable banking system and one which is very, very well-structured to support investment in the economy going forward, particularly in areas like automation. So just saying, I want to make more than that clear. And many people refer to her as a sort of neoliberal figure. In fact, one of the consequences of her reforms of the banking system is that the proportion of banks in public ownership has actually increased significantly because she has protected the state banks, the big state banks, while cleaning them up,

and closed all these corrupt small private banks so that well over half of the banking system now in Russia in terms of deposits. I mean, far more like 70, 80% of it is publicly owned and she has resisted all attempts to privatise it. She's been very successful in this. So she's creating a financial system which once inflation is properly tamed will be very effective in investing in the economy going forward and in providing long time. loans to achieve automation, to build up industries, to do all of that. And you can start to see the effects. You can see it in the shipbuilding industry, for example.

You can see it in the electronics industries and things of this kind. So just to say. All right, we will end the video there at the durand. dot local.com. We are on Rumble and Telegram and X. Go to the Duran shop, pick up some merch like what we are wearing in this video update. There is a link in the description box down below. Take care.

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