The Central Bank of Russia (CBR) resolved to cut the key interest rate by 50 basis points (bp) to 16% at the policy board meeting on December 19, according to the regulator's press release.

A cautious key interest rate cut was largely expected, as the CBR managed to keep inflation to almost 6% by the end of 2025, but remained cautious on the fiscal framework that relies on hiking taxes and the VAT as of 2026.

The CBR has cut key interest rate by 50bp at the previous meeting of October 24. The Governor of the CBR Elvira Nabiullina launched an unorthodox policy to artificially slow growth using non-monetary policy methods. That has allowed the regulator to implement 450bp of rate cuts this year, bringing the total to 500bp with the latest cut.

As a reminder, inflation slowed to 6.6% year-on-year (y/y) in November and further to 6.3% y/y by December 8. Latest weekly inflationary data indicated that inflation might well slip under 6% by the end of 2025, well below the CBR’s October guidance of 6.5%–7%. 

The CBR itself estimated that “as of December 15, annual inflation was estimated at 5.8% and is expected to end 2025 below 6%”.

The CBR opted to cut the key interest rate even though inflation expectations among households and businesses have risen, in defiance of the actual consumer price growth readings.

The CBR indeed noted that “inflation expectations have somewhat increased in recent months” and that “credit activity remains high”. These expectations may rise further in early 2026 as tax changes are priced in. The upcoming VAT increase and its broader base are expected to begin impacting prices at the start of 2026. 

Over the short- to medium-term, the CBR will likely maintain the key interest rate in double digits until inflation reliably approaches the policy target of 4%.

“The [Central] Bank of Russia will maintain the tightness of monetary conditions necessary to return inflation to target. This implies a prolonged period of tight monetary policy,” the CBR said. 

According to the updated CBR forecast, with the current monetary policy, annual inflation will decrease to 4%–5% in 2026. Sustainable inflation will reach 4% in the second half of 2026. In 2027 and beyond, annual inflation will remain at the target level, the regulator argues.

Renaissance Capital analysts previously expected projects to continue key rate cuts through 2026, potentially reaching 12% by year-end. However, a temporary pause in early 2026 is possible due to the inflationary effects of VAT hikes and utility tariff adjustments. 

The CBR indeed commented on December 19 that “after the effects of the upcoming VAT hike and the indexation of regulated prices and tariffs fade, disinflation will continue. This will be supported by tight monetary conditions”.

The Central Bank pointed to persistent signs of overheating. However, it noted that “labour market tensions are gradually easing”, while still warning that “unemployment remains at historical lows, while wage growth continues to outpace productivity growth”.

All in all, for CBR, pro-inflationary risks still “continue to outweigh disinflationary ones in the medium term”. 

“The main pro-inflationary risks are associated with a prolonged deviation of the Russian economy above the balanced growth trajectory, elevated inflation expectations, effects from the VAT hike and regulated prices, and deteriorating external trade conditions,” according to the information seen by bne IntelliNews.

In line with most recent reports, the CBR also warned that “further slowing of global economic growth and oil prices, in the event of intensified trade conflicts, may have pro-inflationary effects through ruble exchange rate dynamics”. 

The next meeting of the CBR board is scheduled for February 13 2026.