Russia Central Bank Cuts Rates For Fourth Policy Session

(RTTNews) - Russia's central bank unexpectedly reduced its key interest rate for the fourth policy session in a row, citing high inflation expectations and lackluster growth, and signaled that monetary policy will remain tight for an extended period of time.

The Board of Directors, led by Governor Elvira Nabiullina, decided to cut the key rate by 50 basis points to 16.50 percent, the Bank of Russia said in a statement on Friday. Economists had expected the bank to retain interest rates this month after rate cuts in the previous few sessions.

The central bank had lowered interest rates by 100 basis points in the previous session in September. A similar reduction was undertaken in June, which was the first such move since 2022, and was followed by a bigger 200 basis points cut in July.

"The Bank of Russia will maintain monetary conditions as tight as necessary to return inflation to the target," the bank said. "In the baseline scenario, this also implies an average key rate in the range of 13.0-15.0 percent per annum in 2026 and means a long period of tight monetary policy."

The central bank expects inflation to ease to 4.0-5.0 percent next year, which is higher than projected earlier. The bank attributed the upward revision to the one-off proinflationary factors including fuel price developments, tax hikes, as well as the indexation of utility tariffs at a higher rate. Core inflation is forecast at 4 percent in the second half of next year.

"Current proinflationary risks also include lending growth acceleration at a rate higher than forecast by the Bank of Russia and rising labor shortages," Governor Nabiullina said during her press conference.

The bank said elevated inflation expectations may impede a sustainable slowdown in price growth.

Policymakers expect current inflationary pressures to temporarily increase late this year and early 2026 due to several factors, including price adjustments and the reaction of inflation expectations to the upcoming VAT rise.

"The upward deviation of the Russian economy from a balanced growth path is narrowing," the bank said.

The phase of economic overheating will come to an end in the first half of next year, Nabiullina said. The bank lowered the GDP growth forecast for this year to 0.5-1.0 percent.

Growth slowed in the third quarter, but is estimated to be positive, underpinned by domestic demand. Export-oriented industries witnessed a marked slowing in activity, the bank observed.