‘Economy Stabilizing’ – Russian Central Bank Cuts Key Rate Again

Oct 25, 2025 at 10:08 AM

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Lanka Leader

The Bank of Russia has lowered its key interest rate for the fourth time this year, saying the economy is stabilizing even as inflation expectations remain high.

On Friday, the central bank announced a 50-basis-point cut, bringing the rate to 16.5%. It pledged to keep monetary policy tight enough to bring inflation down to its 4% target, from an estimated 6.5–7% in 2025.

“The current inflationary pressures will temporarily rise in late 2025 and early 2026 due to several factors, including price adjustments and public reaction to the upcoming VAT increase,” the bank said. The government plans to raise the value-added tax (VAT) from 20% to 22% to help balance next year’s budget.

Governor Elvira Nabiullina said future rate changes would depend on how stable the decline in inflation proves to be. She also warned of external risks, citing potential fallout from global trade tensions and falling oil prices, which could weaken the ruble and fuel inflation. The statement came a day after the United States announced new sanctions on major Russian oil firms Rosneft and Lukoil, targeting Moscow’s energy revenues.

According to the bank’s forecast, the average key rate in 2026 will range between 13% and 15%, with annual inflation expected to ease to 4–5%. The bank expects inflation to return to its 4% goal by 2027.

The latest rate cut marks a continued move away from the emergency tightening imposed after Western sanctions in 2022, when the key rate was raised from 9.5% to 20% to stabilize the ruble. Following renewed inflation pressures, the rate peaked at 21% in October 2024, before the bank began gradual cuts this year.

After shrinking by 1.2% in 2022, the Russian economy grew 3.6% in 2023 and 4.1% in 2024. Growth is now projected to slow to 1–2% in 2025, 1.5% in 2026, and 2.5% in 2027.