Russia Cuts Interest Rates to 14.5% to Tackle Crisis and Instability
Russia’s central bank cut its key rate to 14.5% amid economic slowdown and inflation concerns, maintaining caution due to budget uncertainties and Middle East tensions.
This decision was not unexpected, as nine out of ten economists surveyed by Bloomberg had predicted it. It marks the fifth consecutive reduction, with 50 basis points cut each time.
According to the bank’s statement, underlying inflation indicators have not fallen sufficiently, while “significant uncertainty” regarding the external environment and fiscal policy remains. The bank did not rule out the possibility of further cuts, depending on the stability of the inflation slowdown.
The bank’s governor, Elvira Nabiullina, is expected to hold a press conference later today in Moscow.
The Russian economy is under pressure from shrinking activity, calling into question official growth forecasts for 2026. The tight financial conditions, maintained to contain inflation amid the war in Ukraine, continue to weigh on economic activity.
President Vladimir Putin last week asked officials to explain the slowdown and take measures.
Uncertainty around government spending and the situation in the Middle East limits room for more aggressive moves. However, analysts believe there could be a larger interest rate cut in June, when the trajectory of economic activity becomes clearer.
The central bank has highlighted that U.S. President Donald Trump’s confrontation with Iran could have long-term inflationary effects, although the extent of these remains unclear.
At the same time, the increase in fiscal spending is raising concerns about inflation trends. Government expenditures rose by 17% year-on-year in the first quarter, intensifying worries about possible budget overruns.
Inflation slowed to 5.77% in April from 5.9% in March, while inflation expectations dropped to 12.9%. The central bank estimates that annual inflation will range between 4.5% and 5.5% in 2026.
Russia’s GDP contracted by 1.8% in the first two months of the year, according to statements by Putin earlier this month.
Despite the slowdown, the central bank continues to prioritize inflation control, describing the drop in economic activity as a “manageable” adjustment of an overheated economy.
The next interest rate decision is expected on June 19.
