Russian central bank holds key rate steady at 14%

By Mucahithan Avcioglu

ISTANBUL (AA) - The Bank of Russia decided on Friday to keep its key interest rate unchanged at 14% per annum, pointing to elevated price pressures and persistently high inflation expectations.

In a policy statement, the central bank noted that while the Russian economy is growing at a moderate pace in the second half of 2026, underlying price growth has not yet decreased and remains between 5% and 6% in annualized terms.

The bank attributed this trend primarily to a temporary reduction in production capacities in certain sectors, adding that aggregate demand must grow moderately for underlying inflation to resume its decline.

According to the bank's estimates, seasonally adjusted price growth averaged 8% in annualized terms in the third quarter of 2026, rising sharply from 4.8% in the second quarter. Core inflation also increased to 6.2% from 4.5% over the same period, driven in part by volatile components such as motor fuel.

As of October, annual inflation in Russia stood at 6.8% and is projected to finish 2026 between 7.1% and 7.6%.

Under its baseline scenario, the Bank of Russia forecasts the key rate will average between 12.5% and 13.5% in 2027, with annual inflation expected to return to its 4% target next year.

The bank warned that pro-inflationary risks still prevail over disinflationary ones in the medium term. Key risks include supply-demand imbalances, prolonged production capacity contractions, geopolitical tensions, and wage growth continuing to outpace labor productivity -- even as labor market tightness gradually eases and unemployment remains near historic lows.

While consumer demand growth is slowing, lending activity remained elevated in the third quarter, driven largely by corporate borrowers, the statement added.

The central bank had gradually lowered its policy rate from 21% to 14% through a series of rate cuts initiated in June 2025.

Mücahithan Avcıoğlu