Russia's Central Bank cut its policy rate to manage the impact of sanctions and geopolitical tensions on the economy. At its meeting on Friday, July 24, 2026, the policy rate was lowered by 25 basis points to 14%.
In a statement, the bank said the economy grew at a moderate pace in the second quarter of 2026. It emphasized that the marked increase in prices during the summer months and the rise in inflation expectations were largely driven by one-off factors.
Inflation and Growth Outlook
According to the bank's assessment, annualized core inflation indicators are hovering in the 4-5% range. While credit growth slowed somewhat in June, businesses' expectations for future demand and output declined significantly.
The Central Bank noted that rate cuts need to be more gradual due to the direct and secondary effects of a temporary contraction in production capacity in some sectors, as well as a more supportive fiscal policy over a three-year horizon compared to April forecasts.
"Russia's Central Bank will make its future policy rate decisions based on inflation dynamics, inflation expectations, and risk assessments stemming from domestic and external conditions," the statement said. According to the baseline scenario, the average policy rate is projected to be 14.5-14.6% in 2026 and in the range of 10.5-12.5% in 2027.
Prices and Inflation Expectations
Due to a marked increase in fuel prices, the year-end inflation forecast for 2026 was updated to 6-7%. The bank expects inflation to converge to the target in 2027 and beyond under the current monetary policy stance.
In the second quarter of 2026, seasonally adjusted monthly price growth averaged 5.0%. This rate was 8.7% in the first quarter and 4.3% in the final quarter of 2025. A similar indicator for core inflation fell to 4.2% from 6.2% in the previous quarter. However, current price growth accelerated in the June-July period.
The Central Bank reported that price dynamics in recent months have been significantly influenced by volatile items such as diesel and fruit and vegetables. As of July 20, annual inflation stood at 5.9%.
Noting that inflation expectations among the public, businesses, and financial market participants have risen, the bank warned that persistently high expectations could prevent a lasting decline in inflation.
Economic Activity and Labor Market
According to operational data, the economy recorded moderate growth in the second quarter of 2026. Consumer demand was the main driver of growth, while investment activity showed a limited recovery but remained weak overall. From June onward, the impact on output of a temporary contraction in production capacity in some sectors increased.
The marked decline in businesses' expectations for future demand and output may signal a slowdown in consumption growth in the second half of the year. In this context, the 2026 GDP growth forecast was lowered to a range of 0.0-1.0%, while the 2027-2028 forecasts were left unchanged.
Tightness in the labor market is gradually easing. Surveys show that businesses are having less difficulty finding workers. Although wage growth is slowing, it continues to outpace productivity growth, and unemployment remains at historically low levels.
Monetary Conditions and Credit
The Central Bank assesses that monetary conditions are moderately tight. Interest rates have risen in most segments of the financial markets. Taking into account the increase in inflation expectations, real monetary tightness has eased somewhat, while non-price conditions on bank loans remain tight.
In June, credit growth lost momentum, mainly due to a slowdown in corporate loans. In contrast, growth in the retail loan portfolio accelerated. A limited decline was observed in households' propensity to save.
Risks and Fiscal Policy
In the medium term, pro-inflationary risks continue to outweigh disinflationary risks. The main upside risks are listed as more pronounced secondary effects of the temporary loss of production capacity in some sectors, stronger pass-through of costs to prices, and high inflation expectations. Additionally, risks include wages continuing to rise faster than productivity, a deteriorating global economic outlook, and geopolitical tensions increasing price pressures worldwide. A more pronounced slowdown in domestic demand is cited as a disinflationary risk.
The July baseline scenario assumes that the structural primary budget deficit will be gradually reduced to zero by 2029. However, fiscal policy parameters will be updated in October after the government submits new medium-term budget drafts to parliament in the autumn. The Central Bank warned that if the new projections foresee a higher structural deficit, tighter monetary policy than in the current baseline scenario may be required.
Next Steps
The next meeting of Russia's Central Bank on the policy rate will be held on September 11, 2026. The decision statement will be published at 13:30 Moscow time.
