Sberbank CEO Warns of Russian Economy Overcooling, Suggests Key Rate Cut to Boost Growth

In an interview with Reuters, Alexander Vedyakhin, First Deputy CEO of Russia's largest lender, Sberbank, has warned that the Russian economy could experience excessive cooling due to high interest rates and may face difficulties returning to a growth path. The comments were made ahead of Russia's main economic conference in St Petersburg, which starts on Wednesday. Vedyakhin projected a growth rate of between 1% and 2% in 2025, which is below the government's more optimistic projection of 2.5%. He emphasized the need for the regulator and all economic and financial authorities to act with wisdom and sensitivity to stop inflation and prevent a sharp decline in production. The central bank hiked the key rate to 21% last October in an attempt to bring down inflation in the overheated economy focused on military needs. With inflation starting to come down, it then cautiously cut the rate by 1 percentage point on June 6. Vedyakhin believes that the central bank's key rate could be around 17% by the end of this year, but he does not think it will sharply reduce the rate as there is a risk that inflation could rise again. Vedyakhin argued that only a key rate below 15%, which equals the EBITDA margin of many of Sberbank's clients, would help to resume investment and revive economic growth. He also noted that the rouble is currently overvalued and should be at the level of 90-95 per dollar given the current oil prices and macroeconomic factors. Vedyakhin said that factors such as high interest rates, a thin domestic forex market, logistical difficulties, payment problems, and sales of foreign currency from the fiscal reserve are behind the rouble's strength. He added that a high real interest rate increases the demand for rouble savings instruments, so there is no point in buying dollars in Russia. Sberbank's corporate loan portfolio will grow by 9-11% in 2025, a slowdown compared to the 19% growth in 2024. However, the number of loans that had to be restructured remains low. Vedyakhin said that energy and other exporting companies faced an ideal storm of low global oil prices, strong rouble, and logistical difficulties due to Western sanctions but no loan restructuring procedures were launched. He stressed that the situation was difficult mostly for inefficient firms which did not create a safety cushion during the bumper years. In conclusion, Vedyakhin believes that only the strongest firms with the maximum accumulated level of capital and the most operationally efficient will survive in the current economic climate. The Russian economy faces challenges ahead as it navigates through high interest rates and other economic headwinds.