The Central Bank of Russia cuts its key interest rate to 16.5%

The Central Bank of Russia cut its key interest rate to 16.5% from 17% on Friday, in line with analysts' expectations.

The Bank of Russia said in a statement that the economy continues to return to a balanced growth path, although it noted that inflation expectations remain elevated.

The central bank expects annual inflation to decline to between 4.0% and 5.0% in 2026, with core inflation expected to reach 4% in the second half of 2026. From 2027 onwards, the bank expects annual inflation to remain at the target level.

The upward revision to the 2026 forecast is due to temporary inflationary factors, according to the statement. Current price growth measures have not changed significantly and remain above 4% year-on-year.

The bank noted that lending growth has accelerated in recent months, which could influence its monetary policy decisions.

Looking ahead, the Bank of Russia said it will maintain monetary conditions "as tight as necessary" to return inflation to the target level. The bank's baseline scenario projects an average key interest rate in the range of 13.0% to 15.0% per annum in 2026, indicating a prolonged period of tight monetary policy.

The central bank added that future interest rate decisions will depend on the sustainability of the inflation slowdown and the dynamics of inflation expectations.