Russia Unexpectedly Cuts Interest Rate

The Bank of Russia cut its benchmark interest rate by 50bps to 15.5% in its first meeting of 2026, contrasting with the median market survey of a hold, to address growth concerns in the Russian economy. The CBR cut its rate despite the reacceleration in consumer prices according to the latest data, noting that that recent price pressures were largely due to one-off events and the disinflation process will likely continue throughout the year. The central bank also noted that it did not see evidence of a substantial pass-through of the new VAT measures in large portions of the domestic consumer basket, limiting earlier concerns that higher taxes would be inflationary. Meanwhile, the CBR noted that growth slowed in the fourth quarter and that the labor market tightness is gradually decreasing. Additionally, the elevated real rates, strong ruble, and high OFZ yields in the long end maintained restrictive financial conditions and warranted lower rates.

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.