The Bank of Russia has announced a reduction in its key interest rate to 17% per annum, citing a decline in inflation since the beginning of the year and slower growth in both external demand and economic activity. Elvira Nabiullina, Governor of the Bank of Russia, explained the reasoning behind the decision at a press briefing following the Board of Directors meeting on September 12, 2025.
"Inflation has notably decreased since the beginning of the year, while external demand and economic activity growth has decelerated. Overall, this paves the way for cutting the key rate. Nevertheless, inflation expectations have remained heightened, the growth of corporate lending has sped up, while the uncertainty, including with regard to fiscal policy decisions, persists. In these conditions, we need to make our decisions cautiously, assessing further adjustment of monetary conditions and the response of markets," Nabiullina said.
Nabiullina noted that August saw a traditional drop in headline consumer prices due mainly to seasonal declines in fruit and vegetable costs. However, she cautioned that underlying inflation remains between 4–6% annually over recent months and emphasized that it will take time to reinforce this disinflationary trend.
"This is critical when inflation expectations are elevated. They remain high and almost unchanged among all groups: households, businesses, and financial market participants. The double-digit indexation of utility rates could have negatively affected people’s expectations in August. Another possible factor was prices for petrol, which is one of the core goods impacting households’ expectations about future price growth. Fuel prices soared in the summer months. Given the Government’s measures to limit exports accompanied by the expansion of supply in the domestic market, we expect that the situation here will stabilise," she added.
On economic performance, Nabiullina reported that GDP dynamics for Q2 2025 were slightly below previous estimates and output remains near the lower bound of forecasts for this year. She pointed out continued expansion among sectors focused on domestic demand but contraction among export-oriented industries due to both lower international commodity prices and restricted access to some global markets.
"The vivid examples are the coal industry, oil production, and ferrous metallurgy. Companies in these industries faced a decline in revenues, while their costs increased. Revenues dropped due to the reduction in external demand and global prices. As for their costs, they increased because of the sanctions and considerable growth in prices for materials, components, and labour, caused by the overheating of domestic demand over the previous two years. According to our assessment, the deterioration of external conditions was the main reason for the decline in financial results of many mining and quarrying enterprises. Higher interest expenses were an additional negative factor for highly leveraged companies, but its impact was much weaker than the adverse effects of external market conditions," she stated.
Despite moderate overall expansion in domestic demand—with investment expected to grow less than during record highs seen from 2023–2024—Nabiullina highlighted uneven investment across sectors as well as rising consumer demand supported by higher household incomes.
Unemployment remains at historic lows although some companies have shortened working weeks instead of layoffs—a measure aimed at retaining staff after prior labor shortages.
Turning to monetary conditions more broadly: "Interest rates in the economy have notably declined in recent months... Deposit rates have dropped more notably than loan rates... The reduction in interest rates has accelerated lending especially in corporate segment... Retail lending edged up in August as well..."
She indicated saving activity continues despite falling deposit rates because incomes are up—encouraging both savings and consumption—and stressed ongoing monitoring given rapid lending growth.
Regarding external factors: "Export and import dynamics are close to last year’s figures. However, deteriorating external conditions might continue to exert pressure on export prices."
Nabiullina warned that pro-inflationary risks remain prevalent due largely to persistent high inflation expectations and tight labor markets; excess government spending could also limit further rate cuts if budget deficits exceed baseline scenarios.
"As usual...we will take into account information about economic situation...lending...inflation... At our meeting in October a lot will depend on parameters of fiscal policy that will be ultimately proposed..." she concluded.
The central bank's stated goal remains achieving an inflation target of 4% next year as a basis for returning to moderate interest rates and ensuring stable economic growth.