Russia Eases Policy as Growth Concerns Trump Inflation

Russia’s central bank has again eased monetary policy, trimming its key interest rate by half a percentage point to 15.50 per cent, underscoring mounting economic concerns that are outweighing inflationary risks. The move on Friday marked the sixth consecutive reduction in borrowing costs, surprising a majority of market economists who had anticipated the rate would be left unchanged.

The Bank of Russia made the decision at its first policy meeting of 2026, lowering the benchmark rate from 16.00 per cent. According to the regulator’s press release, this adjustment reflects a continued effort to support a slowing wartime economy still contending with high financing costs.

Despite headline inflation accelerating in January — driven mainly by one‑off factors such as higher value‑added tax and administered price adjustments — the central bank maintained that underlying inflationary pressures have not fundamentally shifted and are expected to recede as temporary influences fade.

Rate‑Setting History and Context

The recent cut brings the cumulative reduction since mid‑2025 to 5.5 percentage points, as the central bank gradually eased from the exceptionally high levels maintained in the early phase of the war. Previous rate adjustments were as follows:

Source: Bank of Russia rate releases

Economic Outlook and Future Policy

The central bank signalled that further rate cuts could be forthcoming, but stressed that future decisions would hinge on developments in inflation and expectations. In its baseline forecast, the average key rate for 2026 is projected to be between 13.5 per cent and 14.5 per cent.

Economic growth is moderating, with government estimates placing gross domestic product expansion at around 1.3 per cent this year, while the central bank projects a range of 0.5–1.5 per cent.

For now, the decision to prioritise growth signals a shift in the Bank of Russia’s focus — from strict inflation control toward cushioning an economy under pressure from elevated interest rates and external shocks. Analysts will be watching upcoming data closely to gauge whether the central bank’s cautious easing cycle continues.