The Bank of Russia has reduced its key interest rate by 50 basis points, bringing it to 16.50% per annum, according to a decision made by the central bank’s Board of Directors on October 24, 2025. The move comes as underlying measures of current price growth remain above 4% in annualized terms and inflation expectations stay high.
The central bank stated that it will keep monetary conditions tight for as long as necessary to bring inflation back to target levels. “In the baseline scenario, this also implies an average key rate in the range of 13.0–15.0% per annum in 2026 and means a long period of tight monetary policy,” the statement read. Further decisions regarding the key rate will depend on how sustainable the slowdown in inflation is and on changes in inflation expectations.
According to forecasts from the Bank of Russia, annual inflation is expected to decline to between 4.0% and 5.0% in 2026, with underlying inflation reaching around 4% during the second half of that year. The forecast for 2026 was revised upward due to one-off factors contributing to higher prices.
Recent data show that seasonally adjusted price growth increased to an annualized rate of 6.4% in the third quarter of 2025, up from 4.4% in the previous quarter. Core inflation stood at about 4.3%. Annual inflation was recorded at 8.2% as of October 20 and is projected to be between 6.5% and 7.0% by year-end.
One-off events such as higher motor fuel prices and a quicker-than-usual rise in fruit and vegetable costs have contributed significantly to recent price increases, resulting in uneven dynamics across consumer goods categories.
Inflation expectations among businesses and households remain elevated, which could hinder efforts toward sustained disinflation.
The Bank expects temporary increases in inflationary pressure later this year and into early next year due partly to upcoming adjustments like a VAT increase but anticipates these effects will fade over time under continued tight monetary policy.
Economic indicators suggest that while overall activity slowed somewhat during Q3 compared with earlier periods, growth remains positive—though uneven across sectors—with export-oriented industries seeing notable slowdowns while domestic demand benefits from rising household incomes and government spending.
Labor market conditions are still tight; wage growth has moderated compared with last year but continues outpacing productivity gains, while unemployment remains at record lows.
Monetary conditions overall remain restrictive despite some easing earlier this year; lending rates have risen since mid-September amid market expectations for future policy tightening, though real interest rates have stayed relatively stable recently.
Households continue saving at high rates while retail loan portfolio growth remains moderate; corporate lending accelerated during the second half of this year compared with earlier months.
The central bank noted that risks favoring further price rises outweigh those supporting lower prices over the medium term—these include persistent economic imbalances above trend levels, strong inflation expectations linked partly to tax changes like VAT hikes, worsening external trade terms, potential global economic slowdowns or oil price drops due to trade disputes impacting ruble exchange rates—and ongoing geopolitical uncertainties also add unpredictability.
On fiscal matters, officials acknowledged that budget policies for next year are expected now to have less impact slowing down inflation than previously thought but said fiscal discipline should help curb price rises over time; any major shifts here may prompt corresponding changes on the monetary side.
Following its latest meeting on October 24th, the Board updated its medium-term forecast plans: “On November 6th, the Bank of Russia releases the Summary of the Key Rate Discussion and Commentary on Medium-term Forecast.” The next scheduled key rate meeting is set for December 19th.
