Russia’s central bank dropped interest rates to 15.5% on Friday, the fifth cut since last year. Officials lowered rates by half a point from 16%, saying the economy is getting back on track despite prices jumping in January after the government hiked taxes on everyday purchases.
The bank expects to keep cutting rates this year, but wants to see inflation moving closer to its 4% target first. Inflation stood at 6.3% as of Feb. 9. That’s down a lot from last year, but still above target.
Sofia Donets, chief economist at T-Bank, said Friday’s decision was the strongest signal for easier monetary policy since 2023. “For now, this guidance is conditional and tied to how inflation progresses,” she said. “Still, it’s a sign that a turning point may be near.”
The cuts reverse an aggressive campaign that saw the bank jack rates up to 21% in September 2024 – a two-decade high. Those emergency rates came as officials tried to cool inflation driven by huge military spending and worker shortages.
As Cryptopolitan reported last July, the bank had cut rates to 18% after keeping them frozen at emergency levels for months. Before that, in December 2024, the bank was raising rates hard to fight soaring prices.
High borrowing costs have crushed business investment and choked off growth. President Vladimir Putin said last week the economy grew just 1% in 2025. “But we also know that this slowdown was not simply expected. One could even say it was man-made,” Putin told officials. “It was connected with targeted measures to reduce inflation.”
Budget deficit balloons as oil money dries up
Military spending keeps climbing, but government income is falling. January’s budget deficit jumped to nearly half the full-year target of 3.8 trillion rubles ($49.4 billion).
Oil revenues are the real problem. The Finance Ministry said oil and gas money in January totaled 393.3 billion rubles ($4.29 billion). That’s 32% below plan and only half of January 2025.
Global oil prices have dropped. Russian crude sells at bigger discounts. The ruble got stronger, which cuts revenue since oil taxes get calculated in dollars but paid in rubles.
Then there’s India. The Trump administration has been pushing India to stop buying Russian oil. It’s not clear if India will actually do it, given its need for cheap energy and its relationship with Moscow.
Deficit could triple official target
Economy Minister Maxim Reshetnikov said Thursday that growth will keep slowing through the first half of 2026. There’s still room for more rate cuts, he said.
The bigger picture looks rough. Some government estimates suggest the budget deficit could hit three times the official target by year’s end if oil revenues keep falling. That would push the shortfall to 3.5% to 4.4% of GDP, compared to the planned 1.6%.
Officials face a tough spot. They need to ease borrowing costs to help growth, but can’t move too fast if inflation picks up. They also need to plug a growing budget hole without killing an already weak economy.
Whether they can pull it off depends on things beyond their control – oil prices, sanctions, and the ongoing conflict in Ukraine.
For now, the central bank is betting inflation will keep falling and give it room to cut rates more. The next few months will show if that works or if the budget crisis and slow growth force a different plan.