Consumer prices in December 2025 rose by 0.3% month-on-month (m/m), while annual inflation eased to 5.6% year-on-year (y/y) from 6.6% in November 2025, according to the latest data by RosStat. (chart)

As followed by bne IntelliNews, the Central Bank of Russia (CBR) managed to drive inflation below 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 resolved to cut the key interest rate by 50 basis points (bp) to 16% at the policy board meeting on December 19.

As reported last week, price growth deceleration in late 2025 was partially offset by acceleration in early 2026. 

However, Renaissance Capital analysts commented the impact of VAT hikes, the expansion of the taxpayer base, and increases in selected duties and excise taxes will only be measurable in March, after January inflation data becomes known. 

At the next CBR key rate meeting, the regulator is expected to rely primarily on end-2025 data when assessing inflation trends, which supports a cautious continuation of the rate-cutting cycle, RenCap analysts argue. However, inflation expectations could act as a limiting factor.

“The further sharp fall in Russian inflation, to 5.6% y/y in December, will be welcomed by the central bank but this is likely to be temporary as a result of the VAT hike that came into force this month. We still think it’s likely that the central bank pauses its easing cycle in February,” Capital Economics commented. 

Capital Economics also notes that the sharp fall in inflation suggests that price pressures were much softer than expected at the end of the year, but this is likely to be temporary. 

“The communications at the central bank’s last meeting in December suggested that policymakers are concerned about the recent rise in inflation expectations and the impact of the VAT hike,” Capital Economics warns.

“The full-month figures for January will be key, but we suspect the central bank will opt to keep rates on hold at its meeting in February. We think it will return to a cautious easing cycle thereafter, bringing the policy rate down from 16.5% to 13% by year-end,” according to Capital Economics. 

As a reminder, the CBR will hold its next policy board meeting on February 13, and RenCap analysts maintain a baseline scenario for February at a cautious rate cut of 50bp. The regulator is expected to continue the monetary easing cycle throughout 2026, with the key rate projected at 12% by the year-end.