The Bank of Russia left its key rate at 14% on September 11, ending an easing cycle that had run through ten consecutive cuts since June 2025. (chart)

"The economy as a whole is growing at a moderate pace in 2026 Q3. Current price pressures have increased significantly in recent months," the board said in its statement. Underlying price growth has accelerated to 5% to 6% in annualised terms, which the bank put down mainly to "a temporary reduction in production capacities in certain sectors". Annual inflation stood at 6.3% on September 7.

That phrase about production capacity is doing a lot of work. The bank has been more explicit elsewhere about what is behind it: fuel prices, driven up by Ukrainian drone attacks on Russian refineries, along with fruit and vegetables, are the volatile components that have moved the index, The Moscow Times reported. Ukraine's strike campaign has now pushed a supply shock far enough into the consumer basket to stop a rate-cutting cycle.

The cycle it stops had been steady rather than dramatic. The rate came down from 15.50% on February 13 to 15.00% in March, 14.50% in April, 14.25% in June and 14.00% on July 24. Two of the last three moves were 25 basis points, and the bank had already signalled that easing would slow.

The bank kept its forecast of 6% to 7% inflation for 2026 and a return to the 4% target in 2027. It described monetary conditions as moderately tight, said pro-inflationary risks now prevail over disinflationary ones over the medium term, and pointed to supply and demand imbalances driven by higher domestic demand and "a longer contraction of production capacities in certain industries".

There is some evidence the squeeze on labour is easing. The bank said surveys show labour shortages continuing to decrease, wage growth slowing and converging towards productivity growth though the gap remains significant, and unemployment near historic lows but up slightly in recent months. Lending has been running high, driven by corporate borrowing rather than households, and the household propensity to save has fallen a little while staying elevated.

The sharpest passage is aimed at the government. The bank's July baseline assumes the structural primary budget deficit falls to zero by 2029, and it said fiscal parameters will be detailed in its October forecast once the government has submitted new medium-term budget projections to the State Duma. "If these projections assume a higher structural primary budget deficit, a tighter monetary policy stance than stipulated in the baseline scenario may be required," the statement concluded.

In other words, the finance ministry has been told in advance that a looser budget will be paid for with a higher policy rate. That matters because Russia is running a war budget into a third year of high real rates, with GDP growth projected at 0% to 1% for 2026.

The political pressure has been running both ways. Sberbank chief executive German Gref has warned about the economy overcooling and business has been lobbying for cheaper money, while President Vladimir Putin argued before the meeting that flooding the economy with money is dangerous and that suppressing inflation remains the priority, Meduza reported. The board has come down on the president's side.

The ruble weakened during Moscow Exchange trading on the day and was close to flat immediately after the decision, according to the state news agency TASS, which is not linked here under this publication's sourcing rules. The next decision, with an updated forecast, is due in October.