Bank of Russia cuts key rate to 14.25 percent

The Bank of Russia's Board of Directors decided to lower the key rate by 25 basis points to 14.25 percent per annum.

This move reflects a moderate pace of economic growth following a temporary decline earlier in the year.

Despite the cut, underlying price growth is estimated by the central bank to remain in the 4–5 percent range annually, indicating persistent inflationary pressures.

Lending growth has accelerated in recent months, while fiscal policy is anticipated to be more accommodative than previously projected over the three-year horizon.

This accommodative fiscal stance could necessitate a higher key rate path than initially assumed in the April baseline scenario, posing a challenge to the central bank's disinflation efforts.

The central bank will evaluate the necessity for further key rate reductions at upcoming meetings, contingent on the sustained slowdown of inflation, the evolution of inflation expectations, and an analysis of external and domestic risks.

The Bank of Russia forecasts annual inflation to decrease to 4.5–5.5 percent in 2026, with underlying inflation nearing 4 percent in the second half of 2026.

Beyond 2027, annual inflation is projected to align with the target.

While high-frequency data indicate an improvement in economic activity during Q2 2026, consumer demand has recently accelerated, and investment remains subdued.