Take off the pause: the key rate may be reduced to 12-13% by the end of the year

The Bank of Russia started the year with a step that most analysts did not expect: at the first meeting, it lowered its key rate by 0.5 percentage points, to 15.5%. This was made possible by the increased rigidity of monetary policy. However, inflation remained high in January. The transfer of VAT changes to prices, as well as the adjustment of the cost of fruit and vegetable products, had an impact. The Central Bank, however, expects that as these factors are exhausted, price growth will continue to slow down. Against this background, there will be room for further rate cuts. By the end of 2026, it may be lowered to 12-13%, experts polled by Izvestia believe. How the Central Bank's policy will affect the economy is in the Izvestia article.

Why did the Bank of Russia lower its key rate

The central bank lowered its key rate to 15.5% per annum following a meeting on February 13. In October and December, the regulator also lowered the rate by only 0.5 percentage points, although it had previously softened its policy faster.

The Russian economy continues to return to a balanced growth trajectory. In January, inflation accelerated under the influence of one-time factors, the regulator said. A partial increase in VAT to 22%, excise taxes, indexation of regulated prices and tariffs, and cost adjustments for fruit and vegetable products led to a temporary but significant acceleration in price growth in the first month of the year. The regulator added: after their exhaustion, inflation will continue to decline.

From January 1 to January 12, prices in Russia increased by 1.26% on average, which is significantly higher than the usual monthly data. As of February 9, the figure was 6.3%. The main reason is the expected transfer of the VAT increase to the final cost of goods and services, said Elvira Nabiullina, head of the Bank of Russia. However, the effect turned out to be more pronounced and concentrated in January than it was with the previous tax adjustment in 2019, she said.

However, there are still risks of an acceleration in the cost of goods and services — among the pro-inflationary factors, the Central Bank named tax changes, high inflation expectations and deteriorating terms of foreign trade. The regulator also noted the uncertainty due to the geopolitical situation. Nevertheless, according to the Central Bank's forecast, price growth in annual terms will slow down to 4.5–5.5% in 2026.

Answering a question from Izvestia at a press conference on the rate, the head of the Central Bank noted: if price growth is low and expectations for them are high, then the risk that inflation will not stay at the target level of 4% is increased. This situation limits the space for reducing the key. However, expectations will gradually decrease when inflation remains close to the target for a long time. At the same time, such a process will be slower than before — inflation has been high for too long, she added.

At the same time, labor market tensions are gradually decreasing, the Central Bank's commentary notes. The share of enterprises experiencing staff shortages has reached its lowest level since mid-2023. In addition, companies are planning more moderate salary indexations in 2026 compared to previous years. At the same time, unemployment remains at historic lows (2.2% in December), and wage increases continue to outpace productivity growth.

How will the Central Bank's decision affect the economy, loans and the ruble exchange rate

The increased rigidity of monetary policy creates the necessary conditions for the return of inflation to the target level of 4%, said Elvira Nabiullina. This allows the regulator to move towards a gradual easing of policy, while maintaining caution and consistency.

The central bank will consistently lower the rate to 12-13% by the end of 2026, experts interviewed by Izvestia believe. Nevertheless, reducing the key rate by 0.5 percentage points is a serious step given the high price growth in January and inflation expectations, said Peter Arronet, chief analyst at Ingo Bank.

At the same time, the regulator demonstrates its determination to bring inflation to the target, said Sergey Grishunin, Managing director of the NRA rating service. At the same time, the willingness to adjust the DKP is emphasized depending on external conditions and budget policy parameters, he added.

— The key rate has decreased slightly, which will further lead to a decrease in interest rates on loans and deposits. This, in turn, should revive lending, which slowed down in late 2025 and early 2026 after rising in the fall. In addition, banks will maintain strict conditions in order to avoid risks," said Mikhail Gordienko, Professor of the Department of Finance for Sustainable Development at Plekhanov Russian University of Economics.

The decision of the Central Bank has restored to business the hope of restoring lending activity on a more tangible scale, said Dmitry Tselishchev, managing director of the investment company "Rikom-Trust". According to him, this can be an important impetus both for launching new investment projects and for refinancing the already accumulated debt burden.

In addition, Mikhail Gordienko added: loan and deposit rates will decrease for Russians. Retail lending has already accelerated somewhat in recent weeks, but this momentum is largely due to mortgages, said Elvira Nabiullina. At the same time, a significant part of the demand was, in fact, "borrowed" from future periods. The Central Bank expects a correction in the future, she added.

Reducing the interest rate in this case is aimed at stimulating economic growth by reducing the cost of credit resources, as well as consumption, Mikhail Gordienko believes.

The ruble exchange rate in February is likely to continue to strengthen in the range of 77-80 rubles/$, experts believe. According to Spartak Sobolev, head of the Alfa-Forex Investment strategy research department, the national currency in pairs with the dollar, euro and yuan remains attractive due to the still high key interest rate.