Bank of Russia cuts key rate in July

CBR makes another cut, surprising markets: At its meeting on 24 July, the Bank of Russia (CBR) made its 10th consecutive cut, mirroring June’s decision and lowering the key rate by 25 basis points to 14.00%. The reduction surprised the markets, which had expected that the Bank would pause its easing cycle after inflation spiked during the summer months as Ukrainian drones hit multiple oil refineries across the country and caused widespread fuel shortages.

Fragile economic growth prompts further easing: The Central Bank's decision to continue monetary policy easing, despite a recent spike in inflation, was driven by timid economic growth seen so far in the first two months of Q2 after Q1’s decline, and by signs of economic activity easing toward quarter-end. Moreover, the jump in inflation was driven by one-off factors, and underlying price pressures remained stable. Still, the cut was limited to 25 basis points as supply shocks and a stronger-than-expected fiscal impulse risk fanning inflation.

Cuts will likely continue as CBR downgrades its 2026 GDP growth forecast: The Bank of Russia revised its baseline scenario and now expects the key rate to average 14.50–14.60% this year vs 14.00–14.50% in the previous projection; the CBR has upped its 2026 average inflation outlook to 6.0–7.0% from 4.5–5.5% previously. Meanwhile, it trimmed its 2026 GDP growth forecast to 0.0–1.0% from 0.5–1.5%. Thus, monetary easing should continue during the remainder of 2026—even if at just a slow pace; the barely growing economy needs support despite high inflation. All of our panelists expect further cuts by year-end, ranging from 50 to 300 basis points, with the Consensus for roughly 150 basis points of additional easing this year. The Bank noted that if the new budget due for October pencils in a higher-than-expected structural primary budget deficit, monetary policy will be tighter than in the updated baseline scenario. The CBR will reconvene on 11 September.

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