The decision came as a surprise to the market
The Bank of Russia’s Board of Directors continued its cycle of monetary policy easing by cutting the key rate for the tenth consecutive time. However, as in the two previous meetings, the regulator limited the cut to 25 basis points, demonstrating a more cautious approach, RBC notes.
The publication notes that most participants in RBC’s consensus forecast expected the Central Bank to pause for the first time in nearly a year and keep the rate at 14.25%. Only a few experts anticipated another cut.
The Bank of Russia noted that the economy continued to grow at a moderate pace in the second quarter, and that the spike in inflation and inflation expectations over the summer was largely driven by temporary factors.
At the same time, the regulator acknowledged that inflationary risks remain predominant.
Nabiullina: Rate Cuts Should Be Gradual
Bank of Russia Governor Elvira Nabiullina emphasized that the rise in public inflation expectations in July was primarily linked to the situation in the fuel market.
“According to preliminary data, businesses’ demand expectations declined in June. This may indicate more subdued demand in the future, which will limit companies’ ability to pass on increased costs to prices. We have taken into account that the public’s inflation expectations rose significantly in July in response to developments in the fuel market, which could have secondary effects on inflation. In light of this, and given the more expansionary budget, the easing of monetary policy should be more gradual,” said the head of the Bank of Russia.
Later, at a press conference, Nabiullina explained that the impact of rising fuel prices on inflation expectations is to be expected.
“Gasoline is an important benchmark commodity, as it accounts for a significant share of households’ regular purchases and corporate costs. As the situation in the fuel market stabilizes, inflation expectations may decline: this is roughly how they reacted to the VAT increase—after a short-term spike, expectations corrected fairly quickly,” she said.
Economic forecasts have become less optimistic
At the same time, the Bank of Russia revised its macroeconomic forecasts. The regulator raised its projected average key rate for the current and next years and downgraded its forecast for Russia’s GDP growth in 2026 to 0–1%, down from the previous 0.5–1.5%.
The Central Bank noted that further decisions on the key rate will depend on inflation dynamics, inflation expectations, and the assessment of domestic and external risks. In addition, the regulator warned that a more accommodative fiscal policy may require maintaining tighter monetary conditions.
The Bank of Russia’s decision signals a continuation of its course toward a gradual reduction in borrowing costs; however, the regulator makes it clear that further policy easing will be limited by persistent inflationary risks.
