The Bank of Russia has announced a reduction in its key interest rate to 16.5% per annum, following a meeting of its Board of Directors on October 24, 2025. The decision comes as monetary conditions remain tight and the central bank continues efforts to ease policy, despite emerging risks that could push inflation higher.
Elvira Nabiullina, Governor of the Bank of Russia, explained the reasoning behind the move: “The situation has been developing generally in line with our forecast. Monetary conditions remain tight, fostering disinflation. Therefore, we have made the decision to continue monetary policy easing. At the same time, significant proinflationary risks have materialised since the previous meeting. They are primarily associated with an increase in the budget deficit in 2025 and higher fuel prices.”
Nabiullina noted that while there was a pause in declining underlying inflation measures in September, expectations for increased taxes may cause a short-term rise in prices even as they help reduce inflation over the medium term. She stated: “The expected increase in taxes will help bring inflation down over the medium-term horizon, but will also lead to a one-off rise in prices in the short term. We have factored this into our decision, first, by reducing the pace of monetary policy easing, and, second, by revising upward the projected key rate path required to bring inflation back to 4%.”
She detailed that current price growth accelerated recently due mainly to changes in petrol and vegetable prices and seasonal factors affecting food costs. Even after accounting for these temporary influences, underlying inflation remains above target levels: “However, even if we strip these and other transitory factors from inflation, its underlying measures are still above 4%. They are not demonstrating a sustainable downward trend.”
Inflation expectations among companies increased in October after several months of stability; businesses attributed this shift partly to anticipated tax hikes. Household expectations remained steady.
According to updated forecasts from the Bank of Russia, annual inflation is now projected at 4–5% for next year due to temporary factors such as fuel market developments and utility tariff increases. The central bank expects underlying inflation to return to its 4% target during the second half of 2026.
On economic performance, Nabiullina reported uneven growth across sectors with some industries like pharmaceuticals and tourism expanding while others such as metallurgy saw declines linked more closely to external challenges than domestic monetary policy effects. Consumer demand rose slightly in anticipation of higher vehicle recycling fees; investment demand stayed strong but varied between sectors.
“The expansion of consumer demand sped up somewhat in 2025 Q3,” she said. “As for investment demand, we can say that it stays at the high levels it has reached earlier.” Despite some signs that last year’s economic overheating is subsiding—evidenced by moderate demand growth and increased production capacity—indicators like low unemployment and wage growth outpacing productivity suggest adjustment is ongoing.
Nabiullina highlighted financial pressures on small- and medium-sized enterprises amid cooling demand and rising rates but noted overall business stability based on regular surveys conducted by regional branches.
Looking ahead, GDP growth for 2025 has been revised downwards to between 0.5% and 1%, with acceleration expected over subsequent years.
Regarding monetary conditions more broadly: “Overall, they have barely changed, remaining tight.” Corporate lending growth has picked up recently compared with earlier this year; estimates for corporate loan portfolio expansion were raised while retail lending forecasts remained unchanged.
In terms of external factors influencing Russia’s economy—including oil prices—the global slowdown is proceeding more gradually than previously anticipated. The ruble has strengthened somewhat since the last meeting due largely to high interest rates making ruble assets attractive relative to foreign alternatives.
Discussing risks going forward Nabiullina said: “The ratio of risks is still shifted towards proinflationary ones.” Uncertainties include how rising petrol prices or tax increases might affect public expectations or trigger further rounds of price increases; faster-than-expected lending growth or labor shortages also pose challenges alongside potential volatility in global oil markets complicated by sanctions against Russia.
“In recent months,” she concluded,” new factors have emerged that will notably impact inflation over the next few quarters… So far,the balance of factors requires a higher-than-expected key rate path to ensure a sustainable return of inflation to the target.In the updated forecast,we have raised the key rate range for 2026 to13–15%,which will make it possibleto achieve our4%inflation targetand keepinflation atthis level furtheron.”
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