Russia Cuts Rate 50 bps to 16.5%

The Central Bank of Russia (CBR) cut its key interest rate by 50 basis points to 16.5 percent — its first reduction in a year — signalling cautious confidence that inflationary pressures are moderating while domestic demand cools. Governor Elvira Nabiullina said the economy remains under the dual strain of sanctions and supply bottlenecks, but added that policy settings remain “restrictive enough” to prevent renewed price acceleration.

Headline inflation fell to 5.6 percent in September from 6.1 percent earlier in the year, though core inflation remains sticky due to rising wages and import substitution costs. The ruble (USDRUB ≈ 93) held stable against the dollar, supported by robust energy receipts, while Brent crude (CL=F ≈ US$89) provided fiscal breathing space. The CBR expects GDP to grow 3.2 percent in 2025 before slowing to about 1.1 percent in 2026 as labour shortages and tighter capital controls constrain output.

Analysts view the rate cut as a technical adjustment rather than the start of a broad easing cycle. With real rates still positive, the CBR is signalling a fine-tuning phase aimed at balancing inflation control and growth preservation. Markets anticipate the next move only in mid-2026, contingent on disinflation persistence and geopolitical stability.

Fiscal policy remains expansionary under elevated defence and infrastructure spending, yet Russia’s reserves — above US$580 billion — continue to provide a credible buffer. Credit demand remains soft, and household borrowing has stabilised. Overall, the cut reflects an economy adjusting to slower growth under sustained financial constraints but supported by strong oil revenue and disciplined monetary management.