Russian Central Bank Holds 14% Key Rate, Lifts 2026 Inflation Forecast Amid Uncertainty
Central Bank Decision and Economic Impact
By Elena Fabrichnaya and Gleb Bryanski
MOSCOW, Oct 23 (Reuters) - The Russian central bank kept its key rate on hold at 14% for the second time in less than two months as Ukrainian drone attacks on refineries, government spending, and utility fees kept inflation high in the near-stagnant economy.
The central bank raised its forecast for inflation to between 7.1% and 7.6% in 2026 from 6%-7% previously and indicated it expects rates to remain near current levels in the coming year. The bank targets inflation of 4%, a level it still expects to reach in 2027.
The decision was in line with a forecast of all 20 analysts polled by Reuters this week. The latest data showed that the consumer price index was up 6.2% since the start of the year, compared with a 4.8% rise in the same period last year.
Inflation Pressures and Contributing Factors
"Current price pressures remain elevated. Inflation expectations stay high," the central bank said in a statement.
Impact of Drone Attacks and Fuel Prices
Prices for petrol have spiked by 21% and for diesel by 13.4% since the start of 2026 after drone attacks, described by the central bank as "one-off factors", put many refineries out of action and triggered queues at fuel stations across the country.
"Underlying price growth has not yet decreased and remains in the range of 5%–6% in annualised terms, primarily due to the impact of a temporary reduction in production capacities in certain sectors," the central bank said in reference to the attacks.
Emergency Plans for Data Storage
EMERGENCY PLANS FOR DATA STORAGE
It added that fuel prices were affecting the overall price dynamics while proinflationary risks were linked to "a longer contraction of production capacities in certain sectors".
"We see a decline in both the stock index and the state bond market. It's not surprising, as the outlook for the future has been revised quite harshly," analyst Sofya Donets from T-Investment said.
The Moscow Exchange stock index fell by 1.3% after the decision while the rouble strengthened by 1.5% against the US dollar to its strongest level since early August.
Speaking at a news conference after the decision, central bank Governor Elvira Nabiullina said that the speed of repairs, secondary effects and impact on inflationary expectations were "uncertainty factors".
Asked about drone attacks on data centres and their impact on the banking system, she stressed that the central bank requires banks to have reserve capacity, diversify data storage and have an "emergency plan scheduled by the hour".
Key Rate Outlook and Fiscal Policy
Another Year with Key Rate Above 12%
ANOTHER YEAR WITH KEY RATE ABOVE 12%
High interest rates are holding back Russian economic growth - expected to be 0.6% this year - and are pushing up debt servicing costs for the government at a time when it needs to borrow more to cover the budget deficit.
The state budget deficit is set to reach 3.2% of gross domestic product in 2026, double the previous target of 1.6% of GDP, with spending set to rise by 13% this year, mostly driven by increased military expenses.
The central bank raised its forecast for the average key rate in 2027, an important gauge of its future monetary policy, to between 12.5% and 13.5% from between 10.5% and 12.5% previously.
This implies that the Russian economy will have another year with the key rate above 12%. Businesses see rates at or below this level as necessary for investment to resume.
There is only one more rate-setting meeting scheduled for this year on December 18 and analysts noted the updated forecast for the average key rate left room for a 25-basis-point cut then.
Utility Fee Hikes and Consumer Impact
Utility fee hikes, decided by regional authorities based on guidance from the central government, saw bills rise by an average of 13.4% from October 1, exceeding the guidance figure by 3.5 percentage points.
(Additional reporting by Darya Korsunskaya; Writing by Gleb Bryanski; Editing by Andrew Osborn, Toby Chopra and Alison Williams)
