Russian Central Bank Lowers Key Rate to 15.5%, More Cuts Expected

Impact of Interest Rate Cut on Russian Economy

By Elena Fabrichnaya

Analyst Reactions

MOSCOW, Feb 13 (Reuters) - Russia's central bank cut its key interest rate by 50 basis points to 15.5% on Friday and signalled that rates could fall further in a bid to shore up the slowing wartime economy, which is struggling with high borrowing costs.

Inflation and Price Dynamics

The bank's surprise cut came just 10 days after President Vladimir Putin told top officials from the government and central bank to restore the economic growth rate and urged them not to simply monitor prices.

Global Economic Risks

"The Bank of Russia will assess the need for a further key rate cut at its upcoming meetings depending on the sustainability of the inflation slowdown and the dynamics of inflation expectations," the bank said.

"The baseline scenario assumes the average key rate to be in the range from 13.5% to 14.5% per annum in 2026," it said.

Of the 24 analysts surveyed by Reuters ahead of the decision, 16 expected the bank to hold rates. Just eight out of the 24 predicted a 50-basis-point cut. The rouble was little changed.

Russia's economy, which showed significant resilience to Western sanctions over the course of the first three years of the conflict in Ukraine, slowed down sharply last year after the central bank hiked the key rate to fight inflation.

Russia's government forecasts growth of 1.3% this year, after 1.0% in 2025. The central bank kept its 2026 growth forecast at 0.5%-1.5%. It sees growth of 1.5%-2.5% next year.

A DOVISH SURPRISE

Nicholas Farr, an economist at Capital Economics, said the rate cut was "a dovish surprise" but that he maintained his forecast for rates to end the year at 13%.

The central bank raised its forecast for annual inflation to 4.5–5.5% from 4.0%-5.0%, but cautioned about the rise in prices in January.

Prices have risen by 2.1% since the start of the year, reaching 6.5% on an annual basis, as a result of an increase in value-added tax (VAT), which the government introduced to contain the budget deficit.

"Higher VAT and excise taxes, the indexation of administered prices and tariffs, and price adjustments for fruit and vegetables led to a temporary but considerable acceleration of the current price growth in January," the bank said.

Natalya Orlova, Chief Economist at Alfa Bank, said that the central bank had signalled that the acceleration in inflation at the start of the year was due to one-time factors.

"There is a direct signal that the Central Bank of the Russian Federation will continue to consider the option of reducing the rate at the next meetings," Orlova said.

The central bank was clear that Russia remained subject to global risks. U.S. President Donald Trump this month said he had agreed with India that New Delhi would halt oil purchases from Russia.

"A slower growth rate of the global economy, in case of escalating trade disputes, and low oil prices may have pro-inflationary effects through the rouble exchange rate dynamics," the central bank said.

(Reporting by Reuters; Writing by Guy FaulconbridgeEditing by Andrew Osborn, Kevin Liffey, Philippa Fletcher)