Bank of Russia Cuts Interest Rate

The Bank of Russia cut its policy rate by 25bps to 14.0% in its July 2026 decision, to extend its cutting cycle since the rate was at a record high of 21% up to June of last year. The central bank noted that monetary conditions remained moderately tight despite the elevated level of real rates. The economy grew only at a moderate pace so far in 2026 as robust consumer demand was offset by declining capacity in key sectors, partially due to fuel shortages as Ukrainian forces struck major refineries across Russia. Consequently, the latest data showed the first annual contraction in the GDP in three years in Q1. Meanwhile, the CBR noted that underlying inflation was steady at levels close to the 4% mark. The surge in fuel costs were deemed temporary and one-off by the CBR, although policymakers remained attentive to growing inflation expectations due to the growing budget deficit by the government.

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.