Russian central bank trims rate by 25 bps to 14.25% amid fuel supply, budget risks
Central Bank Rate Cut and Economic Impact
By Elena Fabrichnaya and Gleb Bryanski
MOSCOW, June 19 (Reuters) - The Russian central bank cut its benchmark interest rate by 25 basis points to 14.25% on Friday, a smaller move than the 50 bps that analysts had expected, citing risks stemming from soft budget policy and a decline in fuel production.
Its decision comes as Ukraine steps up drone attacks on Russia's refineries, energy and transport infrastructure, pushing gasoline prices higher and disrupting fuel supplies in some regions.
Inflationary Pressures and Fuel Supply Disruptions
"Pro-inflationary risks have increased due to a temporary decline in motor fuel production," the bank said - the first high-profile official confirmation of the scale of the impact of the attacks on the economy.
Governor Nabiullina's Return and Market Reaction
Governor Elvira Nabiullina ended her three-week absence from public view, which had stirred speculation that she might leave her job, saying at a news conference after the decision that she had the flu and had lost her voice for some time.
Rising Petrol Prices and Regulatory Response
Russia's statistical agency said average petrol prices in Russia rose by 1% in the week to June 15, just before this week's attack on Moscow's oil refinery. Petrol prices are up 6.6% so far this year, compared with an inflation rate of 5.3%.
Some independent petrol-station chains, which do not have their own refining capacity, hiked prices by up to 20% following this week's attacks, prompting the anti-monopoly regulator to demand an explanation of their pricing policy.
Defending the Goal: Central Bank's Policy Stance
DEFENDING THE GOAL
The attacks have forced Russia, the world's third-biggest oil producer and a major oil and fuel exporter, to seek fuel imports by sea. Sources told Reuters that Russia had lost about 25% of gasoline output compared with the daily average in June 2025.
Russia has several mechanisms in place to keep fuel prices stable, including an informal agreement with oil majors not to increase their retail prices above the rate of inflation.
Nabiullina has come in for criticism from businesses for her policy of fighting inflation, but she has retained the support of President Vladimir Putin throughout four and a half years of military action in Ukraine. Her mandate expires in June next year.
"We think of ourselves as goalkeepers against inflation. There are many football matches whose outcome is decided by the goalkeepers. Someone has to defend this goal," Nabiullina said.
The strikes on the energy sector add to Russia's economic woes. Economic growth slowed to 1% last year from 4.9% in 2024, squeezed by high interest rates, Western sanctions and a strong rouble.
More Accommodative Than Expected: Fiscal and Monetary Outlook
MORE ACCOMMODATIVE THAN EXPECTED
The economy contracted by 0.2% in the first quarter, and Nabiullina said it will grow by about 0.5% in the first half of the year. Growth is officially forecast at 0.4% in 2026.
Budget Deficit and Fiscal Policy Adjustments
In the first five months of 2026, the budget deficit of 2.6% of gross domestic product was running above an annual target of 1.6%, due to increased military spending and despite a windfall from higher global oil prices.
The finance ministry has shifted its target for reaching a primary budget balance, which excludes debt servicing costs, to 2029 from 2027, something the central bank has warned could slow the pace of rate cuts badly needed by the slowing economy.
"Fiscal policy over the three-year horizon will be more accommodative than previously expected," the central bank said in Friday's statement.
Market Reactions and Economic Outlook
The smaller cut will disappoint bankers and businessmen who argue that a 12% key rate is needed for investment to resume and who accuse the central bank of setting a trap for the economy with its tight monetary policy.
"The good news is that the rate cuts are continuing. The bad news is that the size of the cut has become smaller, reflecting growing pro-inflationary risks in the economy," said Natalia Orlova, chief economist at Alfa Bank.
(Additional reporting by Anton Kolodyazhnyy, Darya Korsunskaya, Anastasia Lyrchikova; Ksenia Orlova; Writing by Gleb Bryanski; Editing by Mark Trevelyan, Kirsten Donovan)
