Why the Central Bank's rate remains high. Analysis

On Friday, the Bank of Russia will hold a key rate meeting, and the market is approaching it with conflicting expectations. On the one hand, the reduction cycle has already begun last year — in February, the regulator lowered the rate once again, which now stands at 15.5% per annum. On the other hand, the space for further mitigation remains limited. The main intrigue now is not in the decision itself, but in the signal: is the Central Bank ready to accelerate the decline or will it maintain cautious tactics, despite pressure from business. Details can be found in the Izvestia article.

Why is the Central Bank in no hurry to lower the rate

The last time the Bank of Russia cut the rate was in February — by 50 basis points, from 16 to 15.5%. At the same time, the regulator itself explicitly indicated that it maintains tight monetary conditions and will evaluate further steps depending on the sustainability of the slowdown in inflation and the dynamics of inflation expectations. The base scenario of the Central Bank assumes an average rate in 2026 in the range of 13.5–14.5%, and inflation in the range of 4.5—5.5% by the end of the year. The regulator expects to return to a stable 4% only in the second half of 2026. According to the Bank of Russia, annual inflation was estimated at 6% in January, and in February it was 5.91% year-on-year. This is the key to understanding the Central Bank's position: the decline has begun, but the pace is slow.

The Russian regulator almost never makes drastic decisions outside of crisis scenarios. In 2022, the rate was urgently raised to 20% against the background of the shock and then decreased as it stabilized. But the current situation is fundamentally different: there is a protracted struggle against internal inflationary pressures. The last peak of the rate was in the fall of 2024 - 21%. After that, the Bank of Russia gradually reduced it. That is, the entire last cycle is a series of careful, not aggressive steps. This historical trajectory suggests that the regulator sees no reason to quickly "unload" the economy through easing monetary conditions.

The PREP transmission works with a lag, that is, the rate begins to fully affect the economy with a delay of several quarters: first the rate changes, then the credit conditions, then the behavior of businesses and the population, and only then — inflation. This means that the decision that will be made on Friday will most likely affect the second half of the year and the beginning of 2027.

In this logic, the rate is a tool to keep the system within manageability, and now the Central Bank needs to maintain conditions that will bring inflation back to its target.

How oil is changing the balance of the economy

The rate itself does not exist separately from the budget and the oil situation. According to the Ministry of Finance, the oil and gas revenues of the federal budget in 2025 amounted to about 8.5 trillion rubles, which is almost 24% lower than the previous year, mainly due to lower oil prices. At the same time, the federal budget for 2026 has been adjusted with a planned deficit of 3.8 trillion rubles. In January 2026, the budget had already gone into negative territory by about 1.7 trillion. And by the end of the first two months — by 3.4 trillion, approaching the annual target for the deficit.

However, this is not a signal of a crisis, but rather a feature of the budget rhythm — government spending is distributed unevenly throughout the year: large advances are traditionally made at the beginning, contracts and obligations are closed, and money flows into the system faster than usual. This creates the effect of an "expensive start to the year" when the deficit increases dramatically. Then the dynamics tend to level out: the pace of spending decreases, income catches up, and the balance gradually levels out.

Nevertheless, the system used to digest such distortions more easily because it relied on a steady stream of oil and gas revenues. Now this buffer has weakened. Therefore, the current situation requires a more careful adjustment of the entire macroeconomic policy. When the oil and gas flow no longer provides the same margin of safety, any sudden movement — whether it is an accelerated rate cut or a weakening of inflation control — begins to hit the balance sheet faster.

Even if geopolitics temporarily pushes oil prices up, this does not mean that the Russian economy benefits from this in the long run. The conflict over Iran has really raised the prices of oil, gas and fertilizers (we discussed this in detail in a series of materials), supporting export revenues. However, this effect is two-sided, as the soaring cost of energy resources increases pressure on the global economy, reduces the growth rate of global demand and increases market volatility. As a result, exporters do not receive sustained support, especially in the context of the projected oil surplus, which, however, may turn out to be such only on paper. In such a situation, Russia's balance of payments remains sensitive to external fluctuations, which means that the space for a sharp easing of monetary policy is limited.

Additional pressure is created by the ruble exchange rate factor. The strengthening of the national currency over the past year — to levels below 80 per dollar — reduced export competitiveness and squeezed ruble revenues of key industries. In budgetary logic, this is critical: oil is sold in foreign currency, but export earnings need to be converted into rubles, so the stronger the ruble, the lower the oil and gas revenues. This means that a weaker exchange rate is more beneficial to the system, but it increases inflationary risks. The exchange rate is used as a balancing tool, and the key rate acts as a limiter that prevents inflation from accelerating.

Why the "simple solution" won't work

Against this background, calls to weaken the national currency to 100 rubles per dollar and lower the rate look reasonable on paper: this will support exports, increase ruble revenues and revive the economy. This is at the macro level. In practice, business insists on easing the PREP in order to reduce the credit burden, reduce the cost of working capital and return predictability to the investment cycle. With high market rates on corporate loans, companies operate in a strict selection mode: projects with long payback are postponed, investments are shifted to a short horizon, and demand for credit becomes weak and selective. Within the system, a high rate is considered as a factor in cooling the economy.

At this point, macroeconomic logic and business demand converge, forming a seemingly simple solution. However, in practice, this scheme runs into limitations. The rapid rate cut and the weakening of the ruble accelerate inflation and thus immediately hit the stability of the entire system. The current situation is that the budget is still under control, but requires constant adjustment through the course, expenses and PREP.

The rate has become a hub where three conflicts have come together at once: between inflation and growth; between budget discipline and a request for incentives; between the desire of businesses to live with cheaper money and the regulator's responsibility to prevent a new price crackdown. Therefore, calls to quickly raise the conditional rate to 6% and at the same time weaken the ruble to 100 per dollar sound impressive, but there is almost no working implementation mechanism within the current system. Too many contours will have to be released at once, and there are too few guarantees that production will benefit rather than just accelerate inflation.

Hence the most likely range of expectations from Friday's Central Bank meeting. If the regulator maintains the rate, it will confirm that disinflation is not stable enough. If it reduces by another 25-50 basis points, it will not be a turn to cheap money, but a continuation of a cautious cycle in which the rate remains high. In both cases, the main idea will remain the same: the Bank of Russia is not ready to change the order of priorities. First— inflation and manageability, then the growth rate. This is most annoying for businesses today, which do not need theoretically correct money in six quarters, but a cheaper loan now.

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