Bank of Russia Cuts Key Rate to 16.50%
Maintaining Tight Policy Stance
Moscow, Russia – October 24, 2025
The Bank of Russia Board of Directors announced today a decision to cut the key rate by 50 basis points, setting it at 16.50% per annum. This move occurs as the Russian economy continues its return to a balanced growth path.
The key rate cut is implemented despite underlying measures of current price growth remaining above 4% in annualized terms and inflation expectations remaining high. The Bank of Russia stressed that it intends to maintain monetary conditions as tight as necessary to ensure inflation returns to its target.
Inflation Outlook and Drivers
Annual inflation stood at 8.2% as of October 20, and the Bank of Russia expects it to conclude 2025 in the range of 6.5–7.0%.
Current price growth acceleration has been significantly affected by one-off factors, such as increased motor fuel prices and a faster-than-usual rise in fruit and vegetable prices during the autumn months. The seasonally adjusted current price growth rose to 6.4% in annualized terms in 2025 Q3, up from 4.4% in 2025 Q2. Most indicators of underlying inflation remain within the 4–6% annualized range.
Looking ahead, the central bank’s forecast, given the tight monetary policy stance, projects that annual inflation will decline to 4.0–5.0% in 2026. Underlying inflation is expected to reach the 4% target in the second half of 2026 (2026 H2), with inflation remaining on target in 2027 and subsequent years. The 2026 inflation forecast, however, was revised upward due to one-off proinflationary factors.
Commitment to Prolonged Tight Monetary Policy
The new monetary policy path implies a long period of tight monetary policy. The baseline scenario for 2026 suggests an average key rate in the range of 13.0–15.0% per annum.
Monetary conditions remain generally tight. However, money and debt market rates have increased since mid-September, reflecting an upward revision of market participants’ expectations for the future key rate path. Future decisions on the key rate will depend on the dynamics of inflation expectations and the sustainability of the inflation slowdown.
Economic Activity and Lending
The upward deviation of the Russian economy from a balanced growth path is narrowing. High-frequency data indicates a slowdown in overall economic activity growth in 2025 Q3, though the growth rate is still positive.
Domestic demand remains strong, backed by rising household incomes and budget expenditures, leading to a slight acceleration in consumer activity growth. The labor market remains tight, with unemployment at record lows, although surveys show a gradual shrinking in the share of enterprises reporting labor shortages.
Lending growth has accelerated in recent months. Corporate lending in 2025 H2 has been growing much faster than in 2025 H1. Consequently, the forecast for growth in claims on the economy this year has been increased to 8–11%.
Risk Factors Prevail
The Bank of Russia noted that proinflationary risks have increased and currently prevail over disinflationary ones in the mid-term horizon.
Key Proinflationary Risks:
High Inflation Expectations: Inflation expectations remain elevated, posing a potential barrier to a sustainable slowdown in inflation.
VAT Increase and Price Adjustments: Current inflationary pressures are expected to temporarily increase in late 2025 and early 2026, partially due to the reaction of inflation expectations to the upcoming VAT rise and price adjustments.
Economic Growth: A longer upward deviation of the Russian economy from a balanced growth path poses a significant risk.
A key disinflationary risk involves a more significant slowdown in domestic demand. Additionally, the central bank noted that the disinflationary impact of the 2025 budget is expected to be considerably smaller than previously anticipated.