The Central Bank lowered the key rate to 16.5% per annum: what influenced the regulator's decision

The Bank of Russia has lowered its key interest rate once again, reducing it by 50 basis points. Now it is 16.5% per annum. Thus, the regulator reduced the "key" for the fourth time in a row, continuing the reduction cycle that began in June this year. Why the Central Bank lowered the rate is in the Izvestia article.

What decision was made by the Central Bank

At a regular meeting held on October 24, 2025, the Board of Directors of the Bank of Russia decided to reduce the key interest rate. He reduced it by 50 basis points, to 16.50% per annum.

This decision was made against the background of maintaining the current price growth rates, which remain above 4% in annual terms. At the same time, the Russian economy, according to the regulator, continues to return to a balanced growth trajectory, which allowed the cycle of monetary policy easing to continue. In particular, the growth of lending has intensified in recent months.

The Central Bank plans to maintain tight monetary conditions at a level that will allow inflation to return to the target of 4%. In the baseline scenario, this means that the key rate should be in the range of 13-15% per annum in 2026.

"Further decisions on the key rate will be made depending on the sustainability of the slowdown in inflation and the dynamics of inflation expectations," the Central Bank said in a press release.

The Bank of Russia predicts that, taking into account the current PREP, annual inflation will decrease to 4-5% in 2026. This indicates an increase in the forecast for next year, which is due to the effect of one-time inflationary factors. According to the regulator's plan, sustainable inflation of 4% will be achieved in the second half of 2026. And in 2027, inflation will be able to gain a foothold at this level.

The next meeting, which will address the issue of the key rate level, is scheduled by the Bank of Russia for December 19, 2025.

What influenced the regulator's decision

The price increase recorded in the third quarter of 2025 increased year-on-year to 6.4% seasonally adjusted, according to the Central Bank. For comparison, it was 4.4% in the previous quarter. At the same time, the same indicator of core inflation reached 4.3%. Annual inflation, in turn, was 8.2% as of October 20. By the end of 2025, it is expected to be in the range of 6.5-7.0%.

Among the one-time factors that have influenced the increase in the current rate of price growth, the Bank of Russia identifies an increase in the cost of motor fuel and a faster rise in the cost of fruit and vegetable products. The price dynamics remained heterogeneous across the components of the consumer basket.

Inflation expectations also remained elevated. According to the regulator, this may hinder a steady slowdown in inflation. Moreover, according to the Central Bank, inflationary pressures will temporarily increase in late 2025 and early 2026. This situation will be related to price adjustments and the reaction of inflationary expectations to the upcoming VAT increase.

"A further decrease in the growth rate of the global economy and oil prices in the event of increased trade contradictions may have pro-inflationary effects through the dynamics of the ruble exchange rate. Geopolitical tensions remain a significant factor of uncertainty," the Central Bank said.

However, as the influence of these factors is exhausted, disinflation will continue. This will be facilitated by monetary conditions, which continue to remain tight against the background of banks' expectations of monetary policy decisions.

The adjustment to the softening of the PREP occurred in August-September — credit and deposit rates were adjusted taking into account the reduction of the "key". At the same time, rates on the money and debt markets have been rising since mid-September. This is due to the fact that market participants have revised up their expectations for the future trajectory of the key rate. In real terms, however, interest rates have not changed significantly in recent months.

Households are still inclined to save, and the growth of the retail loan portfolio as a whole remained at a moderate level. At the same time, corporate lending grew noticeably faster in the second half of the year than in the first six months of the year. The forecast for the growth of economic requirements this year has been raised to 8-11%.

What steps did the Central Bank expect the experts to take

The Central Bank's reduction of the key rate to 16.5% per annum is a balanced compromise solution appropriate to the current economic conditions. Maxim Chirkov, Associate Professor of the Department of Economic Policy and Economic Measurements at GUU, expressed this opinion in an interview with Izvestia.

The decrease in the "key" remains smooth, which demonstrates the continuation of the established trend towards easing monetary policy, the expert believes. This, he suggests, has a positive effect on the expectations of businesses and citizens.

"The rate cut confirms the regulator's confidence in continuing its anti-inflationary policy and systematically moving towards the inflation target by the end of 2026. Over the previous months, the dynamics of the decline in inflation exceeded the expectations of the Central Bank, and only in recent weeks has there been some growth," Chirkov said.

It is worth noting that the current decision of Cetrobank did not coincide with the expectations of the majority of experts interviewed by Izvestia. A day earlier, on October 23, they predicted that the key rate would remain at 17%.

In particular, Ilya Fedorov, Chief Economist of BCS World of Investments, adhered to this position. He believed that the Bank of Russia would slow down the rate cut cycle against the background of the surge in lending observed in July – August and the acceleration of inflation in September. The expert believed that the regulator would wait for the parameters to stabilize, especially against the background of data on fiscal policy.

Sanctions risks are also superimposed on the downward trend in inflation. Sergei Khestanov, a macroeconomist and associate professor at the RANEPA, drew attention to this. He clarified that it is not yet possible to assess the scale of the impact of the upcoming restrictions, which affects the cautious approach of the Central Bank to the issue of choosing monetary policy rigidity.

Meanwhile, Inna Litvinenko, associate professor of Economics and Management at the Russian State University of Social Technologies, admitted that the regulator could reduce the key rate by half a percent. However, such a scenario seemed unlikely to her.

At the same time, experts believe that by the end of the year the rate may drop to 16%. This will be facilitated by the stabilization of the lending situation, the transfer of VAT to prices and a slowdown in budget spending.

Rodion Latypov, Chief economist at VTB, expects that there will be significantly more room for reducing the key rate closer to the second quarter of 2026. By the end of this year, the "key", in his opinion, may decrease to 12-13%.

Litvinenko predicts that it will be possible to talk about the 8-10% target only in 2027. She believes that the reduction in the key rate will be progressive and gentle and will last for the next two years.