FX.co ★ Russia Unexpectedly Cuts Interest Rate

In its October 2025 meeting, the Bank of Russia lowered its benchmark interest rate by 50 basis points, bringing it down to 16.5%. This marks the fourth consecutive rate reduction, defying market expectations of a rate hold. Despite this adjustment, the central bank emphasized that monetary conditions are projected to stay restrictive over the medium term, given the persistent inflationary pressures facing the Russian economy. Consumer inflation expectations remain high, driven by significant food inflation, and the central bank highlighted that these could be further amplified by upcoming price hikes tied to increased VAT rates as indicated in the federal budget for next year. These measures are deemed necessary to address the widening fiscal deficit caused by financing the ongoing invasion of Ukraine. The bank anticipates that inflation will stay above the 4% target until the end of the following year and indicated that the key interest rate is expected to remain between 13% and 15% during this period. While the Central Bank of Russia acknowledged that economic growth shows resilience, the International Monetary Fund projected a modest GDP growth of only 0.6% for the year.