The Russian central bank on 24th October announced that it was reducing the key interest rate to 16.5 percent, 0.5 percent lower than 17 percent.
The fourth quarter-point cut is the fourth in a row since June, and the period after the bank has started to relax policy, which had soared to wartime highs of 21%.
Before the decision was made, analysts were divided. The majority looked at the bank to maintain or reduce in more aggressive terms- highlighting ambiguity on the duration in which tight money conditions can be sustained, together with slower output and low unemployment records ever.
The new perspective of the bank indicates that the average rates will be 13% – 15%in 2026, compared to July of 12% -13%, as the bank tries to combat inflation and a tight labor market.
Enterprises have cried foul over the high cost of borrowing, which they claim is draining the growth of businesses and dragging the economy.
But according to the Central Bank, high rates are required to reduce the inflation that remained above 8% in October, and this is as a result of the fuel costs and a seasonal increase in food prices.
Yevgeny Kogan, an independent economist, wrote on Telegram after the decision, “Next year we can potentially witness extremely tough economic stagnation.”
The regulator indicated that it would maintain policy as constrained as it was needed to restore inflation to its 4% goal, a feat it now thinks will only be achieved in 2026-2027.
The statement added that further decisions regarding the key rate will be made based on how sustainable the slowdown in inflation will be and the inflation expectation dynamics.
The Bank anticipates the inflation to remain at 6.5%-7% by the year 2025, and then level at 4%-5% by 2026.
The MOEX stock index of Russia increased 1.4 to 2,606 following the rate cut, but went down to 2,535 in an hour, its lowest point in over a week.
The following interest rate announcement will be made on Dec. 19.
