Russia Unexpectedly Cuts Interest Rate

The Bank of Russia cut its benchmark interest rate by 50bps to 16% on December 19, 2025, in line with market expectations, reflecting progress in disinflation amid a gradual return of the economy to a more balanced growth path. Recent data show a slowdown in current and underlying price growth, with seasonally adjusted inflation easing notably in October–November, while annual inflation is expected to fall below 6% by year-end. However, inflation expectations have edged higher and remain a key concern, alongside still-robust lending activity and uneven price dynamics driven by volatile items such as fuel and food. The central bank stressed that monetary policy will remain tight for a prolonged period to ensure inflation returns sustainably to target. Inflation is forecast to decline to 4–5% in 2026, with underlying inflation reaching 4% in H2. Economic growth continues at a moderate but uneven pace, supported by domestic demand, while labour market tightness is easing only gradually.

The Bank of Russia cut its benchmark interest rate by 50bps to 16.5% on October 24th, the 4th consecutive rate cut, and contrasting with market expectations of a hold. Despite the cut, the central bank reiterated that monetary conditions are expected to remain restrictive in the medium term due to persistent upside risks to inflation. Still, consumer inflation expectations remain elevated amid high food prices and a rise in gasoline prices due to Ukrainian attacks on refineries. The CBR noted that this is likely to be magnified by price increases due to higher VAT levels that the Federal government signaled in next year's budget, necessary to trim its widening deficit to finance the invasion of Ukraine. The bank forecasts inflation to remain at above the 4% target until the end of next year, signaling that the key rate is expected to range between 13% and 15% in the period. While the CBR noted that growth remains resilient, the IMF forecasted the GDP to only expand 0.6% this year.

Russia’s central bank will consider the recent surge in gasoline prices and its effect on inflation expectations when deciding on possible rate cuts, Governor Elvira Nabiullina said Thursday. Gasoline prices, which have risen 10.2% since the start of the year—outpacing general inflation—were partly driven by increased Ukrainian attacks on Russian refineries. Nabiullina noted gasoline is one of the “marker” goods influencing inflation expectations, a key factor in policy decisions. “The rise in gasoline prices could slow down the decrease in inflation expectations. Unfortunately, they remain at an elevated level for now,” she said. While describing the price spike as a “one-off” event unlikely to have lasting inflationary effects, Nabiullina added that the central bank still has room to cut rates further this year. The next policy meeting is set for October 24.