💰 Rate Cut Decision
The Bank of Russia cut its key interest rate by 50 basis points to 16.5% on Friday, a move described as “symbolic” by analysts, following recent U.S. sanctions on Russian oil companies Lukoil and Rosneft.
- Governor: Elvira Nabiullina
- Rationale: Easing monetary policy amid slowing demand and softening labor market conditions
- Market Reaction: Russian rouble rose 0.7% against the U.S. dollar post-announcement
“This is a much more negative development than the symbolic 0.5 percentage point rate cut is positive,” said economist Evgeny Kogan.
📈 Inflation and Forecasts
The central bank raised its inflation forecasts for 2026:
- Inflation: 4%–5% (up from 4%)
- Average key rate: 13%–15% (up from 12%–13%)
For 2025, inflation is now forecast at 6.5%–7%, slightly higher than previous estimates.
Drivers of higher inflation include:
- Upcoming VAT increase from 20% to 22% in 2026
- Rising gasoline prices (+11.6% year-to-date) due to Ukrainian attacks on Russian refineries
- Seasonal increases in fruit and vegetable prices
The central bank noted that these pressures are largely one-off factors affecting short-term inflation.
⚖️ Economic Context
- Russian growth: Expected to slow to ~1% in 2025 (down from 4.3% in 2024)
- Investment environment: High rates and geopolitical uncertainty remain a drag
- Exports: Forecast downgraded to -3% in 2025 from -1% previously
President Vladimir Putin acknowledged the sanctions would cause “certain losses” but not significantly threaten Russia’s economic wellbeing.
🔑 Key Takeaways
- Symbolic easing: 50bps cut seen as insufficient against rising costs and sanctions
- Inflation management: VAT increase and oil price pressures expected to keep inflation elevated
- Geopolitical risks: US sanctions and Ukraine-related conflicts are major uncertainties
- Market response: Short-term rouble gains, but economic outlook remains cautious
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