UPDATE 3-Russian central bank cuts key rate to 15.5%, signals more cuts to come

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. Of the 24 ‌analysts surveyed by Reuters ahead of the decision, just eight out of 24 had predicted a ‌50-basis-point cut.

"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.

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 sees growth at 0.5-1.5% this year.

The central bank forecast annual inflation would decline to ⁠4.5–5.5% ​in 2026, 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 ensure that the budget was balanced.

"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.