Russia Unexpectedly Cuts Interest Rate

The Central Bank of Russia cut its key policy rate by 50bps to 15% in its March 2026 decision, aligned with the median estimates by markets to mark a seventh consecutive cut since the rate was at a record high of 21% last year. The Board of Directors noted that gauges of underlying inflation fell more than expected at the start of the year, warranting a continuation in the loosening campaign. The Board also opted for a cut as leading indicators reflected a slower growth in economic activity, while the new VAT implementation by the government is expected to dent consumer spending. Still, the central bank warned that it may not extend the cutting cycle due to proinflationary risks from higher energy prices following the outbreak of war in the Middle East. The war in the Middle East has refrained from tightening financial conditions through higher yields in benchmark bonds, as the surge in oil and gas prices increase government revenues and reduce the outlook for bond issuance.

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.