Central bank reduced the main interest rate
Bank of Russia Extends Period of Monetary Tightening
The Bank of Russia has announced plans to maintain a degree of monetary policy tightening until 2026, aiming to ensure inflation steadily declines to its target without risking a rebound or destabilizing inflation expectations.
In a recent move, the Bank reduced the key rate by 200 basis points to 18.00% per annum on July 25. However, this is just a part of the Bank's broader strategy to keep rates elevated through 2025 and only moderately lower them in 2026.
The Bank's forecast suggests that the key rate will average between 18.8% and 19.6% in 2025, followed by a decline to 12.0% to 13.0% in 2026. This marks a noticeable easing from previously higher forecasts but still reflects relatively high rates compared to historical norms.
The Bank's decision to prolong the period of tight monetary policy is based on several factors. Inflation is forecast to decline from about 9.2% in mid-2025 to 6–7% by the end of 2025, and then return to the 4% target in 2026, requiring sustained policy support.
Other factors include the slowing down of domestic demand, the economy gradually returning to a balanced growth path, and the need to continue guiding inflation expectations downward. The Bank also considers the impact of fiscal policy normalization, which has a disinflationary effect but may require monetary policy adjustments if fiscal parameters change.
The next meeting of the Bank of Russia's Board of Directors to discuss the key rate is scheduled for September 12, 2025. By this time, the Bank hopes to have made significant strides in bringing inflation under control and reducing the need for such tight monetary conditions.
In 2026, inflation is expected to reach 4.0%, a significant decrease from the current levels. The target level of inflation will be maintained after 2026.
Despite the anticipated rate cuts in 2026, the Bank of Russia remains committed to maintaining monetary tightness until the inflation target is achieved. This approach is crucial to prevent a rebound or destabilization of inflation expectations.
[1] Bank of Russia Official Statement, July 25, 2025. [2] Bank of Russia Economic Outlook Report, Q2 2025. [3] Central Bank Governors Meeting Transcript, June 2025.
Businesses may anticipate continued monetary tightening by the Bank of Russia to control inflation and maintain financial stability in the coming years. Additionally, the Bank's strategic focus on keeping interest rates elevated underscores the importance of prudent finance management within the business sector during this period.
