Russia Bank of Russia surprises with a 25bps cut despite raising its inflation forecast

Economics Research 24 July 2026 | 5:13PM BST

Russia: Bank of Russia surprises with a 25bps cut despite raising its inflation forecast

Bottomline: The Bank of Russia cut its key rate today by 25bps to 14.0% against our Clemens Grafe | and consensus expectations of the Bank to remain on hold. The Bank had reduced Goldman Sachs International the increment of its cutting cycle from 50bps to 25bps in the last meeting citing inflationary risk that arise from looser than anticipated fiscal policy and higher fuel prices due to the rise in global energy prices. We had thought that the additional impact on inflation and inflation expectations of the recent drone attacks on Russia’s refining infrastructure and retail distribution system would keep the Bank on hold. Household inflation expectations in July rose sharply by 230bps to 14.7% and are the highest since the immediate aftermath of the beginning of the war. Headline inflation increased in June by 0.7ppt mostly due to the fuel price increase.

The Bank acknowledged these additional factors in the update of its medium-term forecasts, raising the end-year inflation forecast from 4.5-5.5% to 6-7% and lowering its growth forecast from 0.5-1.5% to 0.0-1.0%. However, the upper bound of the average key rate forecast for the year was only slightly raised from 14-14.5% to 14.5-14.6%, consistent with scenarios of 25bps cuts a meeting to no further cuts till year-end. In the press conference governor Elvira Nabiullina said that the Board assumed that the supply restrictions due to drone strikes would prove temporary, and though they had a meaningful impact on expectations the Bank thinks those expectations would normalise quickly once the disruptions disappear similar to the dynamics of expectations post the VAT hike in January. If this proves too optimistic monetary easing would need to be more gradual or it could even force the Bank to hike rates once again. Thus, the Bank opted for accepting the guidance from the authorities that the fuel situation is already on the mend. In an unusual step the Bank assumed its own path for fiscal policy according to the governor, assuming that the structural primary deficit would remain at 2%of GDP in 2025 and only gradually fall to 1% of GDP in 2027 and 0.5% in 2028. The path is significantly looser than the current budget law and medium term program but likely reflects the current thinking at the Ministry of Finance after the spending overruns in H1-26.

It seems to us that the scenario assumed will require the country securing sufficient imports of refined product since the drone attacks are continuing unabated and it will take time to bring the disrupted capacity back on stream. Since Russia has never been a net importer of refined products, it is hard to know how quickly such a plan can be implemented but the risks to inflation and hence rates appear tilted to the upside while the risk to growth are skewed to the downside.

Key number: Key rate cut by 25bps to 14.0 % (GSe and Consensus 14.25%)

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Exhibit 1: Bank of Russia sees lower growth and higher inflation due to recent supply disruptions latest lower bound upper bound lower bound upper bound lower bound upper bound Inflation 6.0% 7.0% 4.0% 4.0% 4.0% 4.0% Jul-26 Average Inflation 5.9% 6.2% 4.3% 5.2% 4.0% 4.0% Key rate 14.5% 14.6% 10.5% 12.5% 8.0% 9.0% GDP 0.0% 1.0% 1.5% 2.5% 1.5% 2.5%

Current account (USD bn) 48 25 15 Oil Price Urals/Espo 60 50 50

previous lower bound upper bound lower bound upper limit lower limit upper limit Inflation 4.5% 5.5% 4.0% 4.0% 4.0% 4.0% Apr.-26 Average Inflation 5.1% 5.6% 4.0% 4.0% 4.0% 4.0% Key rate 14.0% 14.5% 8.0% 10.0% 7.5% 8.5% GDP 0.5% 1.5% 1.5% 2.5% 1.5% 2.5%

Current account (USD bn) 72 44 29 Oil Price Urals/Espo 65 55 55

Source: Central Bank of Russia, Goldman Sachs Global Investment Research