Russia: Bank of Russia decreases rates in December
Bank cuts as expected: At its meeting on 19 December, the Bank of Russia decided to cut the policy interest rate by 50 basis points to 16.00% per annum, matching market expectations. The cut was the fifth in a row and brought the total reduction since the easing cycle began in June 2025 to 500 basis points. That said, the policy interest rate remains at one of the highest levels in recent years.
Softer economic growth drives cut: The Central Bank’s decision was primarily driven by the need to stimulate a decelerating economy. Still, the Bank noted that medium-term inflationary risks have increased: The effects of the VAT increase from January 2026, the deterioration of external trade and a further decline in oil prices in the case of escalating trade disputes may all fan prices through the ruble exchange rate dynamics. These concerns likely prevented the Bank from making a larger cut.
Rate cuts to continue in 2026: The communiqué was void of explicit forward guidance, but it emphasized that monetary policy would remain tight for a long period to aid inflation’s return to the Central Bank’s 4.0% target, indicating a cautious approach toward future rate adjustments. Our panelists expect the Central Bank to cut rates in 2026 but not by enough to pull rates below the 9.2% average seen over the 2010–2024 period.
The Bank will reconvene on 13 February.
Panelist insight: Commenting on the outlook, EIU analysts stated:
“We expect the CBR to cut the interest rate further as the economy continues to slow, but the CBR will act cautiously. The bank faces the unenviable position of still-high inflation and a sharply slowing economy, raising the spectre of stagflation in the coming months. We expect that balancing looser monetary policy to stimulate the economy against the risk of imported inflation if the currency weakens on lower interest rate differentials will prove particularly challenging.”