Russia’s central bank cuts rate by just 25 bps, defying larger expectations

Russia Central Bank Cuts Rate to 14.25% in Smaller-Than-Expected Move

Russia’s central bank lowered its benchmark interest rate by 25 basis points to 14.25% on Friday, delivering a smaller reduction than the 50 basis point cut most analysts had anticipated. The decision marks the ninth consecutive rate cut since the Bank of Russia began easing monetary policy from a peak of 21% in June 2025.wsj

A Cautious Turn

The Bank of Russia said it would “assess the expediency” of further rate reductions at its next meeting, retaining its signal on the key rate but offering a more guarded outlook than in previous decisions. The more modest cut came against a backdrop of renewed pro-inflationary pressures, including Ukrainian drone attacks on Russian oil infrastructure that have disrupted fuel supplies.nampa

Ukraine struck the Moscow Oil Refinery — operated by Gazprom Neft and located just 15 kilometers from the Kremlin — on both June 16 and June 18, halting operations at the facility. The June 18 attack was described as one of the most intense drone strikes on Moscow since the start of the full-scale invasion, with more than 500 flights disrupted and 16 people injured in the surrounding region. Ukraine’s intensifying campaign against Russian energy infrastructure has doubled refinery attacks since the start of 2026, according to Reuters.reuters

Budget Pressures and War Spending

The decision also reflected concerns about a more accommodative fiscal policy stance. Russia’s economy contracted by 0.2% in the first quarter of 2026, which officials have attributed to high interest rates, Western sanctions, and a strong ruble. President Vladimir Putin signaled ahead of the meeting that there were grounds to expect a rate cut, praising the central bank’s monetary policy while noting that inflation had fallen to just above 5%.reuters

Yet ongoing war-related spending continues to complicate the bank’s easing path. The previous April decision had projected an average key rate of 14.0–14.5% for the full year of 2026, a range that now appears tighter given the smaller-than-expected June move.cbr

What Comes Next

The decision was made in the absence of central bank Governor Elvira Nabiullina, who has been on sick leave since late May. She is expected to hold her regular press conference following the meeting. The bank’s next rate decision is not yet scheduled, but analysts may now revise their expectations for the pace of further easing given Friday’s hawkish surprise.reuters