Higher costs of borrowing cooling down consumer demand

RUSSIA ECONOMICS - In Brief 08 Sep 2021 by Alexander Kudrin

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The CBR released statistics on averaged weighted consumer credit interest rates for July. Unsurprisingly they appeared higher than in the previous months. Changes in interest rates varied across segments. Car loans saw the most visible increase in costs of debt servicing. In July, the average interest rate on short-term (up to 1Y) car loans reached 10.41% (up from 9.54% in June, 8.48% in April, and 7.04% in November 2020). Costs of servicing of longer-term car loans (over 1Y) increased up to 12.89% in July.It looks increasingly likely that in August, interest rates will increase further, given that the CBR raised the key rate at the end of July (on the 26th). Since the end of March 2021, the CBR raised the key rate by a cumulative 225 bps. Compared to 4Q20, costs of servicing short-term car loans increased more than that (and are set to rise even more in August-September).Average interest rates on all types of credits (including mortgages) with a maturity exceeding 1Y increased in July to 10.75% (up by 56 bps compared to June), while weighted costs of servicing various loans with up to 1Y maturity rose to 13.82% (up by 40 bps compared to July).Overall costs of consumer debt servicing became double-digit in July all across the market. Therefore, it looked natural that the rate of m-o-m growth of consumer credit started to decelerate in July (to 1.8% from over 2% m-o-m seen in the previous months). Given that consumer lending rates are likely to be higher in August, one should expect a further deceleration of consumer lending growth to a more normal pace going forward. It will cause a slowdown in consumer demand in 4Q20 and beyond. Generally, Russian economic growth in 2...