Russian Central Bank Slashes Key Interest Rate Amid Economic Slowdown

The Russian Central Bank announced on Friday that it has reduced the key interest rate to 16.5%, a decrease of half a percentage point from the previous rate of 17%.

This quarter-point reduction is the fourth consecutive cut since June, when the bank began to ease its policies from a wartime peak of 21%.

Ahead of the decision, analysts were divided in their expectations. Most anticipated that the bank would either maintain the current rate or implement a more substantial cut, highlighting the uncertainty over how long stringent monetary policy can remain in place amidst a backdrop of slowing economic growth and record-low unemployment rates.

The bank’s revised projections indicate that it expects interest rates to average between 13% and 15% in 2026, an increase from the July estimate of 12% to 13%, as it grapples with inflation and a competitive labor market.

Businesses have voiced their concerns regarding elevated borrowing costs, claiming these rates are stifling growth and hindering economic progress.

However, the Central Bank argues that maintaining high rates is crucial to reducing inflation, which stood above 8% in October, largely due to rising fuel prices and a seasonal surge in food costs.

Yevgeny Kogan, an independent economist, commented on Telegram following the announcement that the Central Bank is signaling that the economy may experience significant stagnation next year.

The regulator stated it would maintain a «firm» policy stance as necessary to achieve its inflation target of 4%, a goal it now anticipates reaching only by 2026-2027.

“Future decisions regarding the key rate will depend on the consistency of the inflation decline and the evolution of inflation expectations,” the statement added.

The Bank projects inflation will remain between 6.5% and 7% by the end of 2025, before dropping to a range of 4% to 5% in 2026.

After the announcement of the rate cut, Russia’s MOEX stock index rose by 1.4%, reaching 2,606, but then fell to 2,535 within an hour, marking its lowest level in over a week. The next interest rate decision is anticipated on December 19.

Reporting by AFP contributed to this article.