Bank of Russia Delivers Smaller Rate Cut than Expected

The Bank of Russia cut its policy rate by 25bps to 14.25% in its June 2026 decision, contrasting with the median market consensus of a 50bps cut to 14%. The central bank noted that pro-inflationary risks prevailed in the medium term when citing the warrant for restrictive monetary policy. Such pro-inflationary risks are supported by the external backdrop of higher energy prices due to the war in the Middle East, higher energy prices domestically as refineries are targeted by Ukraine, and higher inflation expectations as wage growth outpaces productivity growth. On top of that, the CBR stated that fiscal policy is more accommodative than previously expected, adding to the requirement that monetary conditions must remain restrictive to prevent further inflation. The inflation rate in Russia eased to 5.3% in May, remaining above the CBR target of 4%.

The Bank of Russia cut its policy rate by 50bps to 14.5% in its April 2026 decision, as expected by markets, and signaled that the cutting cycle is likely close to ending. The move marked the eighth consecutive rate cut since departing from the record-high rate of 21% in June last year. The Board of Directors indicated it sees inflation expectations easing from their assessment in the previous meeting, adding room for looser financial conditions. The Board also noted that tax increases in the first quarter of the year slowed the Russian economy, which the government passed to finance its war in Ukraine and fiscal stimulus to aid consumers in Russia's sanction-hit economy. Pro-inflationary risks continued to prevail over disinflationary risks, resulting in the signal that there might not be room for more cuts. Still, policymaker suggested that expansion in aggregate supply capacity, which was pressured since the war, may expand with lower rates, reducing limiting inflationary concerns.

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.